Activist investor Starboard targets Salesforce, Splunk

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Activist investor Starboard targets Salesforce, Splunk
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Activist investor Starboard targets Salesforce, Splunk

Starboard Value previously made waves with Symantec and Mellanox bids

Activist investment firm Starboard Value now has stakes in Salesforce and Splunk, the firm revealed on Tuesday.

The New York-based firm published a presentation on its website about its position in both IT vendors and website development platform provider Wix.

"Each company represents an opportunity to own a high-quality and sticky business at an attractive valuation with the potential for significant value creation through a better balance of growth and profitability," according to the presentation.

The Salesforce opportunity

For Salesforce, which is working toward $50 billion in revenue by fiscal year 2026, "as growth has slowed, the company has not yet produced margins expected from its leadership position" in customer relationship management (CRM), according to Starboard.

"Salesforce has not realised the benefits of operating leverage over the last several years, and the company has generated significantly lower incremental margins than peers" Oracle, Microsoft, Adobe, Intuit, SAP, Workday and ServiceNow, according to Starboard.

The presentation put Salesforce at number one in marketing campaign management, customer service applications and model-driven application platforms. It put Salesforce at number two in analytics software, integration software, digital commerce applications and the collaboration market.

Starboard founder Jeff Smith told CNBC in a televised interview that he and his firm want to see Salesforce focus more on operating margins and improving value for shareholders.

"Salesforce is a great company, really a terrific company," Smith told CNBC. "Salesforce is ingrained in the fabric of so many companies and has become so important in the way they operate and conduct business."

But, he continued: "They're not dropping as much to the bottom line. They haven't been as focused on operating margins as we think, maybe, they should be."

Earlier this month, it was revealed that Salesforce cut about 90 workers. Earlier this year, Salesforce lowered its guidance for the amount of revenue it expects to see for the fiscal year, ending 31st January 2023. It was the second haircut to guidance this year from Salesforce.

The Splunk opportunity

While Starboard believes that Splunk can generate more value for stockholders on its own, the company could also sell for a lot of money, according to the presentation.

"While we believe that there is substantial value that can be created from improving growth and profitability, we also believe that Splunk is a highly strategic asset that could be attractive to a number of different strategic and financial buyers," according to the presentation.

The Starboard presentation touted new Splunk CEO Gary Steele's success with Proofpoint, pointing out that "Proofpoint sold at an all-time high share price to Thoma Bravo" last year.

"If the new management team is able to improve operational performance, we believe Splunk could benefit from a valuation uplift," according to Starboard's presentation. "If management can successfully execute on a margin improvement plan, we believe Splunk shareholders will be meaningfully rewarded."

The Wall Street Journal reported that Starboard Value has a stake in Splunk of just under 5%. In February, the news outlet reported that Cisco Systems made a $20 billion takeover bid for Splunk.

Starboard faulted "lack of execution and poor forecasting" for Splunk's disappointing quarterly earnings reports dating back to 2020. The shift to an annual invoicing business model has also "obscured the true earnings power of the business."

The firm called Splunk number one in log management and number one in security information and event management (SIEM).

Activist investors in tech

Starboard's interest in Splunk comes on the heels of other activist investor campaigns with the vendor. Hellman & Friedman took a 7.5% stake and recently got a board seat. Silver Lake made a $1 billion convertible investment in June 2021.

Meanwhile, in June, Jana Partners disclosed a 5% stake in New Relic and took a board seat.

Starboard Value previously made waves with Symantec back in 2018, eventually reaching an agreement over new board members. The next year, Broadcom acquired Symantec for about $11 billion.

The firm also invested in Mellanox, which Nvidia bought in 2020 for $6.9 billion.

Last year, Starboard Value's special purpose acquisition company (SPAC) helped data centre colocation provider Cyxtera Technologies go public in a $3.4 billion acquisition.

A version of this story was first published on Computing's sister site CRN.

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