BOSTON – Salesforce will probably be urged by activist investors Elliott Investment Management and Starboard Value to cut more jobs, make changes to the board and spin off big acquisitions in search of greater profit, Wall Street analysts said.
The company, the top maker of customer relations software, has been struggling with slowing growth, executive departures and investor pressure. Its shares have lost half their value since a late 2021 peak, and were in the bottom 10th of S&P 500 stocks last year.
Investors greeted the news on Sunday that Elliott Investment had taken a multibillion-dollar stake by sending shares up 3.1 per cent on Monday to close at US$155.87 – the highest price since the company announced co-chief executive Bret Taylor’s departure on Nov 30.
Salesforce said earlier in January that it would eliminate about 10 per cent of its workforce, which had increased more than 60 per cent in almost three years to about 80,000 employees by the end of October 2022.
Some of that growth came from multiple acquisitions, including the 2021 takeover of business chat application Slack for more than US$27 billion (S$35.6 billion). Elliott Investment’s presence as an activist investor reduces concerns that Salesforce co-founder Marc Benioff might make impulsive mergers to invigorate growth as the sole CEO in the wake of Mr Taylor’s exit, Mizuho Securities analyst Jordan Klein wrote in a note.
Activist investors often push for strategic changes and board representation. Salesforce’s directors are particularly vulnerable to shareholder activism since each member is up for re-election this year, and four non-founders have been on the board for more than 15 years, wrote Mr Patrick Walravens, an analyst at JMP Securities. Discussions over potential board candidates are likely to move quickly, because the current nomination window begins in three weeks.
Elliott Investment is one of several activists seeking changes at Salesforce. Starboard Value announced a stake in October, saying the company was falling behind peers due to issues with translating growth into profitability.
Elliott Investment and Starboard have tried to simultaneously influence companies before. In 2019, each invested in eBay and helped force out the CEO, appoint new board members, and spin off the StubHub ticketing unit.
The two are known as some of the most involved activist investors, said Mr Gregory Rice, who co-leads the shareholder advisory and activism effort at Boston Consulting Group.
Salesforce’s sales and marketing budget is high for the industry and symbolised by massive events like its annual Dreamforce conference. Its expenditures as a share of revenue are well above those of peers such as Adobe or Microsoft, according to data compiled by Bloomberg Intelligence.
An operating margin focus means that major acquisitions are likely off the table in the near term, as past deals for Slack, Tableau and Mulesoft had dented Salesforce’s margins, said Bloomberg Intelligence analyst Anurag Rana. BLOOMBERG
