Activist investor Elliott Management makes multi-billon dollar investment in Salesforce.
It’s time for Salesforce to turn and face the strange as ch-ch-ch-ch-changes are afoot. Again.
With a recent round of layoffs and an ongoing executive exodus, it’s been a turbulent time at Salesforce — and the road may get a lot bumpier as another activist investor takes a significant stake in the CRM market leader.
The New York Times reported on Monday that Elliott Management Corp., a $55 billion hedge fund, now has “a significant stake in the company” — one that The Wall Street Journal is calling a multi-billion dollar investment.
Following the news, Salesforce shares rose nearly 6% today, changing hands at $157.67. While Salesforce shares fell nearly 40% last year, third quarter fiscal 2023 results reported revenue of $7.84 billion, up 14% year-over-year or 19% growth in constant currency.
Salesforce CEO Mark Benioff has yet to address the investment on Twitter, where his feed currently consists of a flurry of retweets related to environmental and climate issues. However, Jesse Cohn, managing partner at Elliott Management, tweeted today that his company looked forward to “working constructively with Salesforce.”
— Jesse Cohn (@jessecohn4) January 23, 2023
What Does Investment Means for Salesforce Customers?
Customers are fearing that the arrival of multiple activist investors will limit Salesforce’s innovation trajectory, according to R “Ray” Wang, principal analyst and founder of Constellation Research, Inc.
“Elliot’s known for forcing tech companies to make tough decisions on R&D investments and sales and marketing spend,” Wang said. “This comes as a critical point for Salesforce where key executives have departed, and the economy has softened.”
Over the past few months, several Salesforce executives announced their departure including Vice Chair and Co-CEO Bret Taylor, who announced he would step down effective Jan. 31, 2023. In the days that followed, Slack co-founder and CEO Stewart Butterfield said he was also leaving. Salesforce acquired Slack for $27.7 billion in 2021. Meanwhile Marc Nelson, CEO and president of Tableau — another Salesforce acquisition ($15.7 billion) in 2019 — resigned in December of 2022.
Board Shakeup After Executive Exodus
Salesforce board members serve one-year terms, with each seat up for re-election every year. Some current board members, including Benioff, have served for more than a decade. But that could all change with the arrival of Elliott Management — and a total board makeover may be in the cards.
“What is worrisome is that Marc Benioff only has 3% of the stake and that the entire slate of board members is being reelected,” Wang said. “This is worrying customers and partners who feel that a founder-led CEO is still very well needed at Salesforce.”
Steve Jennis, principal at Jennis Consulting Group LLC and founding partner of Founder’s Compass LLC, said that typically, activist investors think they know how to run a company better than current management — from an investor’s perspective.
“In other words, with a focus only on the share price,” Jennis said. “They use their board voting power and the support of other investors to try to force the current management to make the changes they feel will boost the stock value.”
Layoffs Follow Starboard Value Salesforce Stake
When Salesforce announced a 10% reduction in their current workforce on Jan. 4 affecting approximately 8,000 employees, as part of a restructuring plan, some believed the decision was heavily influenced by Starboard Value, another activist investor. In October, CNBC reported that Starboard took “a significant stake” in Salesforce after Starboard CEO Jeffrey Smith noted the Salesforce shareholders “have not seen the benefit of the company’s strong market position over the past few years” — pointing to a “subpar mix of growth and profitability.”
Jennis believes activist investors like Starboard and Elliott Management are often playing a short game — in and out for a profit over a few months.
“They represent the raw edge of capitalism,” Jennis said. “All perfectly legal, but almost the opposite of ESG (Environmental, Social and Governance investing). Stock value first, everything else nowhere.”