Activist Elliott takes a multi-billion dollar stake in Salesforce

(Bloomberg) — Hedge fund Elliott Investment Management has taken a substantial activist stake in Salesforce Inc., following layoffs and a deep stock slump at the software giant.

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“Salesforce is one of the most prominent software companies in the world, and by following the company for nearly two decades, we have developed a deep respect for Marc Benioff and what he has built,” said Jesse Cohn, managing partner at Elliott, referring to co chief executive officer and chairman of the company. “We look forward to working constructively with Salesforce to realize the value befitting a company of its stature.”

Elliott’s property is a multi-billion dollar stake, according to a person familiar with the matter who requested not to be identified because the details are private. San Francisco-based Salesforce had a market cap of $151 billion at Friday’s close, down from a peak of more than $300 billion in 2021.

Elliott’s move from Paul Singer — who often pushes for strategic changes and seeks board representation — adds to activist pressure on Salesforce to increase earnings and shareholder returns after half a decade of rapid hiring and large acquisitions, including the 2021 purchase of Slack for $27.7 billion. Salesforce said this month that it is reducing its real estate footprint and cutting 10% of its workforce, which has nearly tripled over the past four years.

Shares of Salesforce rose about 1.7% during early New York trading Monday. Elliott’s supportive comments about Benioff offset investor fears that the recent departure of senior corporate executives will free Benioff to make drastic acquisitions, Mizuho analyst Jordan Klein wrote in a note. Elliott’s track record of increasing returns on capital also helps boost the stock’s attractiveness.

Benioff said earlier this month that customers are taking a “more measured approach to their purchasing decisions” and noted that the economic “environment remains challenging.” Sales at Salesforce increased 14% from a year earlier to $7.84 billion in the third quarter, but that was a sharp slowdown from the growth rate a year earlier and analysts expect only a 9% increase in sales in the quarter. fourth quarter.

Elliott’s stake in Salesforce also comes at a time when activism as a whole is surging globally in some industries. The 177 activist campaigns announced globally last quarter were the most since 2018, according to Bloomberg data. Salesforce joins Walt Disney Co. and Bayer AG as one of the most high-profile companies targeted by activists. Elliott’s statement did not reveal any details about his investment, which were first reported by The Wall Street Journal. Salesforce declined to comment.

Paul Singer’s Elliott raised a record $13 billion last year

Investors have become increasingly critical of the sales and marketing spend the customer relationship management company is known for, such as the annual Dreamforce bash in San Francisco. According to an analysis by Bloomberg Intelligence, Salesforce’s spending as a percentage of revenue far exceeds spending at peers like Adobe Inc. or Microsoft Corp.

Elliott, who has been involved in driving change at technology companies ranging from PayPal Holdings Inc., Pinterest Inc. to Western Digital Corp., is the second prominent activist investor to buy the stock in recent months. In October, Starboard Value took a stake in the company and said it was having trouble translating growth into profitability.

“This is not surprising to us,” Bloomberg Intelligence analyst Anurag Rana said of Elliott’s move. “Salesforce’s valuation has plummeted since it announced its acquisition of Slack, and since then we’ve seen sales slow down and several executives leave the company.”

Bret Taylor, co-CEO of Salesforce, said last year that he would leave the company to return to entrepreneurial pursuits. Taylor was seen as the obvious choice should Benioff ever step aside from Salesforce.

“It is now trading well below pre-pandemic levels,” Rana added. “Elliott’s involvement could help management focus on both organic revenue growth and margin expansion. We will not be surprised if there is a change at the top, similar to what Microsoft went through in 2013.”

–With help from Tom Giles.

(Updates stocks and adds analyst commentary in fifth paragraph.)

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