According to analysts at Wall Street, activist investors such as Starboard value and Elliott Investment Management will probably ask Salesforce Inc. to reduce overheads, hive off big acquisitions, and make boardroom changes for better profitability.
Salesforce, which makes CRM software, has struggled with sluggish growth, investor pressure, and attrition. The shares of the company have declined almost half since peaking in 2021.
The news of Elliot investing multi-billion dollars in Salesforce saw investors sending the shares zooming 3.1% to $155.87 on Monday. This is the highest price achieved since Bret Taylor, CO-CEO, departed on November 30.
Declining Margins on Increased Operating Expense
In January, Salesforce said it would cut about 10% of its employees, which had risen 60% in the last three years to around 80,000. The increase in employee strength was also caused by several acquisitions, including the Chat app Slack for $27 billion in 2021.
Jordan Klein, an analyst with Mizuho Securities, wrote that activist investors like Elliot’s presence might deter sole CEO Marc Benioff from making impulse acquisitions after Taylor’s exit. Activist investors are known to push for representation on the board, and directors at Salesforce are vulnerable as their tenure is expiring this year. According to JMP Securities analyst Patrick Walravens, four board members are not founders and have been at the helm for 15 years. The discussions for new nominations are expected to happen quickly as the current window begins in three weeks.
CEO not to be Forced Out
While Elliot has pushed for a change of CEOs at other companies, it has high respect for current CEO Benioff, as per Jesse Cohn, managing partner at Elliot. Clermont partners senior Managing Director Victoria Sivrais said the level of support by Elliot is seen, and they will not push for Benioff’s replacement. However, it does not imply that other top executives at Salesforce are safe.
Starboard Value bought a stake in Starforce in October and said that the company was falling behind others due to its inability to transform growth into profits. As per CNBC, Inclusive Capital is also a shareholder.
Starboard and Elliot have together tried to influence companies before. Both invested in EBay Inc. in 2019 and forced out the CEO, appointed new board members, and helped spin off StubHub’s ticking unit.
BCGs head of the shareholder advisory, Gregory Rice, says that Elliot and Starboard are the two most activist investors and are well-known for pushing companies for better operating profits.
Salesforce is famous for its annual Dreamforce conference; compared to the industry, its marketing and sales budget is higher. As per data compiled by Bloomberg Intelligence, the expenditure as a percentage of revenue is also higher when compared to peer companies such as Microsoft Corp. or Adobe Inc. The focus on operating margins meant that major acquisitions such as tableau, Slack, and MuleSoft, which dented the margins of Salesforce, would be spun off shortly.
