Activist Elliott takes multi-billion dollar stake in Salesforce

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

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“Salesforce is one of the world’s leading software companies, and after 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 and president of the company. “We look forward to working constructively with Salesforce to realize the value that is right for a company of this scale.”

Elliott’s stake is a multi-billion dollar stake, according to a person familiar with the matter who asked not to be identified as the details are private. San Francisco-based Salesforce had a market capitalization of $151 billion as of 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 pressure from activists on Salesforce to boost profits and shareholder returns after a half-decade of rapid hires and major acquisitions, including the purchase of Slack in 2021 for $27.7 billion. Salesforce said this month it is reducing its real estate footprint and cutting 10% of a workforce that has nearly tripled in the past four years.

Salesforce shares rose about 1.7% in early trading Monday in New York. Elliott’s supportive remarks about Benioff offset investor fears that the recent departure of top executives from the company could give Benioff the freedom to make drastic acquisitions, Mizuho analyst Jordan Klein wrote. in a note. Elliott’s track record of increasing capital returns also helps increase the stock’s appeal.

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.” Salesforce’s third-quarter revenue grew 14% year-over-year to $7.84 billion, but that’s a marked slowdown from the year-ago pace of growth and analysts expect only a 9% increase in sales in the fourth quarter.

Elliott’s stake in Salesforce also comes at a time when activism as a whole is making a comeback in certain sectors globally. The 177 activist campaigns announced around the world last quarter were the most since 2018, according to data from Bloomberg. Salesforce joins Walt Disney Co. and Bayer AG among the most high-profile companies targeted by activists. Elliott’s statement did not disclose details of his investment, which was first reported by The Wall Street Journal. Salesforce declined to comment.

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

Investors have been increasingly critical of the sales and marketing spend the customer relationship management company is famous for, such as its annual Dreamforce party in San Francisco. Salesforce’s spending as a share of revenue is well above spending by peers like Adobe Inc. or Microsoft Corp., according to analysis by Bloomberg Intelligence.

Elliott, who has been involved in promoting changes at tech companies ranging from PayPal Holdings Inc., Pinterest Inc. to Western Digital Corp., is the second high-profile activist investor in recent months to enter the stock. In October, Starboard Value took a stake in the company and said it was having trouble translating growth into profitability.

“It’s not surprising to us,” Bloomberg Intelligence analyst Anurag Rana said of Elliott’s decision. “Salesforce’s valuation has fallen since the announcement of the Slack acquisition and since then we have seen a slowdown in sales and multiple executive departures.”

Bret Taylor, who had served as co-CEO of Salesforce, said last year he would leave the company to return to entrepreneurial pursuits. Taylor had been seen as the obvious choice if Benioff ever retired to Salesforce.

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

–With help from Tom Giles.

(Updated shares and added analyst comment to fifth paragraph.)

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