Salesforce and Elliott Reach Agreement Over Long-Term Plan

Brody Ford and Crystal Tse, Bloomberg News

The Salesforce Tower in San Francisco, California, US, on Wednesday, Jan. 25, 2023. Hedge fund Elliott Investment Management has taken a substantial activist stake in Salesforce Inc., swooping in after layoffs and a deep stock swoon at the enterprise software giant. Photographer: Marlena Sloss/Bloomberg , Bloomberg

(Bloomberg) -- Salesforce Inc. averted a potential proxy fight with activist investor Elliott Investment Management after its stock rose and the enterprise software company made a series of strategic changes.

Elliott won’t proceed with its planned director nominations following Salesforce’s “strong” 2023 fiscal year report, transformation initiatives and “clear focus on value reaction,” the companies said in a joint statement on Monday.

Salesforce Chief Executive Officer Marc Benioff has been grappling with a growing number of activist hedge funds agitating for higher profits. Revenue growth has slowed after a half-decade of steady hiring and large acquisitions, and the San Francisco-based company has been buffeted by executive changes including resignations of heir-apparent Bret Taylor and Slack co-founder Stewart Butterfield.

Still, investors rejoiced earlier this month after the company trounced profit forecast estimates, doubled stock buyback plans and signaled it was putting its large acquisition strategy on ice. Shares have rallied 43% this year, among the largest jumps of companies in the S&P 500. They were little changed in New York at $190.29.

Read More: Salesforce Finds Profit Is New Magic Word for Activist Investors

Monday’s announcement without public concessions to the activist, like a board seat, is a win for Salesforce against Elliott, which took a multibillion-dollar stake in the software maker in January. The activist firm had put forward a slate of board directors in the open nomination window for the annual shareholder meeting, which usually is scheduled around June, suggesting the possibility of a proxy fight. In other companies, Elliott has pushed for CEOs to step down.

Elliott released a positive statement after Salesforce’s blockbuster earnings, though said more work remains. The investor had earlier suggested some of the changes that Salesforce eventually made, though others, including further board director changes and succession planning, weren’t accepted at the time of earnings earlier this month.

Salesforce and Elliott “have committed to continue the productive working relationship they have developed together,” the two companies said in the statement Monday. The “handshake” agreement to withdraw nominees doesn’t stop Elliott from re-engaging publicly with the company in the future, according to a person familiar with the matter who declined to be named discussing a private matter.

“We feel pretty good about what we’ve been able to deliver so far,” Chief Operating Officer Brian Millham said Friday in an interview about Salesforce’s new focus on profit, before adding “it’s not a job that’s done by any stretch.” He said the firm could see job cuts beyond the 8,000 already announced, and hasn’t yet received final recommendations from consultant Bain & Co., with whom Salesforce is working to review the business.

Beyond Elliott, Starboard Value, ValueAct, Jeff Ubben’s Inclusive Capital, and Dan Loeb’s Third Point have invested in Salesforce. In January, Salesforce appointed three new independent directors, including ValueAct Chief Executive Officer Mason Morfit. It also tapped Arnold Donald, the former CEO of Carnival Corp., and Mastercard Inc. Chief Financial Officer Sachin Mehra.

(Updates to note Elliott could re-engage in the future)