Could activist peace be at hand at Salesforce? With the announcement Monday that Elliott would be withdrawing its nomination for the board of directors, it seems that the CRM leader could have forged a peace agreement. The question is: At what cost?
While it’s not clear what this agreement means to the other four activist firms operating inside the company, Elliott is likely pleased with the company’s recent changes including a surprisingly strong quarter combined with some moves like shareholder buybacks, disbanding the M&A group and cost reduction strategies (which partly translated to laying off 10% of the staff).
But this doesn’t necessarily mean that Elliott’s work is done with the company, a person familiar with the agreement told TechCrunch+.
Surprisingly, the terms between the two companies doesn’t include a standstill agreement. There wasn’t even an information-sharing agreement or any type of legal document prohibiting Elliott from speaking badly about the company, talking to the press or anything like that.
“So Elliott established an ongoing relationship. That doesn’t mean it’s walking away or never going to come back,” said the person, who asked to remain anonymous because they were not authorized to speak publicly on behalf of the company. “Like I said, with the freedom of no standstill if everything goes south a month from now or a couple of months from now, the firm can always come back and say, ‘You know, we’re still watching. We’re still involved, and here’s what we think you should do to make it better.’ Elliott doesn’t want that to happen. But that is a possibility that could happen.”
All of that gives Elliott a lot of leeway to continue to pressure the company should circumstances warrant it. But for now, at least, Salesforce appears to have appeased the activist firm, and it has the activists off its back ahead of the stockholder’s meeting in June.
Patrick Gadson, a partner at the law firm Vinson & Elkins who is in charge of shareholder activism and mergers and acquisitions, sees a short-term gain for both sides, but also sees the possibility of this flaring up again down the road.
“Elliott didn’t get anyone in that boardroom, but they also didn’t give up any optionality to surface publicly again, at any time, if they feel the transformation the company has promised fails to manifest. So, the boogeyman is still underneath the bed. I doubt today’s announcement will have the board sleeping soundly,” Gadson said.
Regardless, Salesforce CEO Marc Benioff certainly put a happy face on the whole thing in the company’s statement: “I have thoroughly enjoyed getting to know Jesse and the Elliott team over the last few months, and I am grateful for Jesse’s mindful and constructive ideas. I look forward to continuing my relationship with Jesse and the Elliott team.”
It’s worth noting that Mason Morfort, CEO at ValueAct Capital, one of those activist investors, was added to the board as part of a change Salesforce made to the board makeup at the end of January.
Although the SEC would likely frown upon activists working in concert, the same changes that pleased Elliott would seemingly also make the other activists happy. Ultimately, this all means that there shouldn’t be any board nomination drama at the next shareholder meeting.
William Blair analyst Arjun Bhatia says the company has settled on a period of more controlled growth than in the past. “The company is now prioritizing efficient growth and is no longer operating to grow at all costs — something activists and investors have been pushing for,” Bhatia wrote in a research note published Monday.
All of this also points to a fair bit of work on Benioff’s part, happy public statements aside, because negotiating with Elliott is no easy task. While he didn’t get them to back off completely, he was able to get them to step back, and that’s not to be dismissed easily.
In an interview with Kara Swisher at the Upfront Summit last month, Benioff indicated that he was working with the activists and trying to reach an amicable resolution and learn what he could from them.
“We have to improve our relationships with our shareholders. It’s incredibly important right now, because of what happened last year, we have to be much more diligent in how we’re communicating with them … much clearer, much more specific,” Benioff said in the interview. That didn’t come out of nowhere. It was a rare moment of honesty that he had neglected investors and he needed to do better.
But also on Monday we reported on a possible new round of layoffs coming to the company. It seems unlikely that it’s a coincidence that Salesforce is talking about possible additional cuts at the same time it has reached an agreement with Elliott. Activists do love cost-cutting.
After a rocky period for Salesforce with job cuts, executive losses and lots of activist drama, a strong quarter and at least temporary peace with one the most prominent activist investors has to be good news for Benioff and company. It’s just a shame that the layoffs could be continuing in spite of that.