After strong earnings, Elliot won’t nominate new directors to Salesforce’s board

After strong earnings, Elliot won’t nominate new directors to Salesforce’s board

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Elliott Investment Management LP is scrapping its plan to nominate new directors to Salesforce Inc.’s board, the activist investor announced today.

The development comes a few weeks after Salesforce posted better-than-expected quarterly earnings. Elliot first signaled it may change its stance the day the earnings report was released. At the time, the firm stated that “the strength of Salesforce’s business and its movement in the right direction are key reasons we are among the company’s top investors.”

Elliot is an activist investor, meaning that it buys shares in companies and then pushes for business changes to improve profitability. Those profitability improvements ultimately help increase the value of Elliot’s shares. At the start of the year, reports emerged that the firm had purchased a multibillion stake in Salesforce.

This month, sources told CNBC that Elliot was considering nominating two or three directors to Salesforce’s board. Changing a company’s board allows activist investors to more easily push for changes to its business. Salesforce shareholders were set to vote on the director nominations during the cloud giant’s annual investor meeting, which is usually held in June.

Elliot announced its intent to scrap the plan in a joint statement with Salesforce this morning. According to the statement, the move was influenced by multiple factors.

The first driver behind the decision was the expectation-topping fourth quarter results that Salesforce posted this month. The company reported $8.38 billion in revenue, which represents 14% year-over-year growth, and adjusted earnings of $1.68 per share. Analysts had expected adjusted earnings per share of $1.36 and $7.99 billion in revenue.

Salesforce co-founder Chief Executive Officer Mark Benioff recently stated that “improving profitability is our highest priority.” As part of the effort, Salesforce is seeking to achieve a 27% operating margin in the current fiscal year. That  represents a significant acceleration of the company’s profitability roadmap, which previously targeted a 25% operating margin by 2026.

“I have great respect for Marc and his team, and I have become deeply impressed by their strong ongoing commitment to profitable growth, responsible capital return and an ambitious shareholder value creation plan,” Elliot managing partner Jesse Cohn said today’s joint statement with Salesforce. “We look forward to continuing our productive relationship with Marc and the Salesforce team.”

Salesforce’s push to improve its margins includes multiple elements. In January, the company announced plans to lay off 10% of its workforce. More recently, Salesforce dismantled the internal committee responsible for acquisitions, which indicates that it plans to scale back investments in inorganic growth.

To ease investor pressure, Salesforce is pairing the cost-cutting moves with an expanded stock buyback program. The company doubled its buyback program to $20 billion in conjunction with the release of its fourth quarter earnings results.

Elliot is reportedly one of four activist investors to have taken a stake in Salesforce over the past few quarters. The group also includes Starboard Value, which disclosed last October that it had purchased a “significant” number of shares in the company. Starboard Value previously made investments in Splunk Inc., Box Inc. and other enterprise technology companies. 

Photo: Salesforce

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