- Salesforce is now being targeted by a second activist investor: Elliott Management.
- Activist investors could overtake Salesforce’s board of directors, forcing it to divest acquisitions like Slack.
- The entire Salesforce board is up for re-election this year, giving activists a window to act.
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Salesforce has had a turbulent few months, including massive layoffs and an executive churn that included a co-CEO. But the real chaos may be yet to come.
The cloud software giant is now being targeted by activist firm Elliott Management, which has taken a large stake in the company. This makes Elliott the second of its kind to target Salesforce, after Starboard Value disclosed its stake in the company in October as it pushed for cost-cutting at the company.
In the near term, the move has Salesforce employees worried about more layoffs beyond those already announced, as these activists urge CEO Marc Benioff to show higher profit margins, Insider reported this week.
Longer term, however, Wall Street insiders believe Elliott’s involvement could signal further changes beyond just cost cutting.
It’s entirely possible that these investors could oust most, if not all, of Salesforce’s board of directors in one fell swoop. And as if that weren’t enough, some analysts think these activist firms may be pushing Benioff to at least explore the possibility of divesting mega-acquisitions like Slack, MuleSoft, and Tableau. It could even see Salesforce ending its remote work policy and requiring at least some employees to return to the office, analysts speculate.
Unlike many other tech companies, Salesforce appoints its board members for only one-year terms, which means they must be re-elected by shareholders every year. JMP Securities analyst Pat Walravens tells Insider that Elliott and Starboard could take advantage of the situation by rallying the support to replace many or most of those board seats with their own nominees at this year’s meeting later this year.
That’s not necessarily a bad thing, he said: Five members of the Salesforce board, including Benioff himself, have held their seats for fifteen years; Walravens thinks they could target these old hands and try to bring fresh blood to the company with new ideas.
“I think there’s pretty broad agreement that the board needs a refresh,” Walravens said.
Some want Salesforce to sell Slack and Tableau
Salesforce has been criticized for the sky-high $27.7 billion it paid for workplace messaging app Slack, especially since that deal came so shortly after its massive acquisitions of companies like data analytics firm Tableau and data integration firm MuleSoft.
Many of those acquisitions, notably Slack, were led by Bret Taylor — the former co-CEO of Salesforce who surprisingly resigned late last year. Following Taylor’s departure, some believe the involvement of the activist investors could persuade Salesforce to recoup some of that investment by selling those companies.
“Salesforce has been in empire building mode for too long and should focus more on its core market opportunities,” RBC analysts wrote in a note to clients this week. It continued, “One way to continue to derive value from assets that we consider non-core is through divestment.”
However, Salesforce probably wouldn’t get the full amount it paid for Slack if it sold it in current market conditions, RBC notes. However, it believes that some acquisitions like MuleSoft, ClickSoftware or Heroku would generate a profit if sold while minimizing business disruptions.
Salesforce could return to the office and overhaul executive compensation
Elliott and Starboard could also push for relatively smaller but no less significant changes.
Walravens says the activist firms could encourage Salesforce to reconsider its office strategy. The company has invested heavily in a global real estate presence, including its Salesforce Tower headquarters in San Francisco. Those offices are now largely vacant as the company switched to remote work during the pandemic. While the company has downsized some of its office space as the tech market slows, it still has plenty.
In a context, Benioff himself has expressed some willingness to bring employees back into the office: He recently faced backlash from within the company after suggesting that remote work may be to blame for lower productivity among employees working during the pandemic years were hired. Now, Salesforce might want to move on and make sure its expensive real estate is actually being used.
Another change Walravens believes is a pay overhaul, particularly for executives.
He believes Elliott and Starboard could get Salesforce to end its practice of providing larger equity grants to senior executives and instead promote a compensation system tied to performance-based goals. That would allow the board – which could fall under the control of activists anyway – to get Benioff’s team to invest their time and energy in specific areas, Walravens said.
Finally, Elliott Management has extensive experience driving its goals at the board level. It recently placed one of its own on the board of Pinterest, ending a boardroom battle that began last summer. So Salesforce should expect changes, said David Larcker, a professor at the Stanford Graduate School of Business.
“You’ve studied this company a lot and you probably understand it as well as the board does,” Larcker said. “The board has to pay attention to that.”
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