Cognizant Shares Rally Amid Activist Letter; How Is Elliott's Track Record?
Cognizant Technology Solutions Corp (NASDAQ: CTSH) shares were on a tear following the release of a letter by Elliott Management that outlined a three-part "Value Enhancement Plan," which envisages a nice bump up in its stock price to $80–$90 by the end of 2017, up 50–69 percent in about a year's time.
Hedge fund Elliott is into the habit of scouting technology companies, which are seeing stagnation in growth. Its mantra has been to return capital to shareholders and reduce investment.
The Modus Operandi
- Buying of big stakes in a target company.
- Forces boards to implement changes, including increasing shareholder returns, and explore a sale.
Citrix Forced To Yield
The very next month, the company signed a co-operative agreement with the fund, appointing Jesse Cohn of the fund, as one of the directors and setting up an operations committee for reviewing operations. The company's then CEO Mark Templeton also announced his retirement.
Citrix shares did respond and are currently trading at around $88, up from $66 levels they were trading at when the hedge fund disclosed the stake and called for changes. The hedge fund had predicted a move towards$90–$100+ by the end of 2016.
EMC Approached But Saved By Dell's Offer
Meanwhile, Elliott Management had also pursued EMC Corporation (NYSE: EMC), which has since been bought by privately-held Dell. The hedge fund took a $1 billion stake worth, or about 2 percent in, EMC in 2014, with the intention of urging EMC to spin off its 80 percent share in VMware, Inc.(NYSE: VMW).
At that time, EMC included in its fold the namesake firm EMC, an information infrastructure provider; VMware, a virtualization company; Pivotal, a software and analytics platform provider; VCE, a converged infrastructure company; and RSA, a security firm.
LifeLock's Security Breached
Lifelock Inc (NYSE: LOCK) was another of Elliott's target, as the latter announced a stake in the company in January this year. Elliott attributed its action to its belief that LifeLock is undervalued.
Among other tech firms, Elliott has orchestrated a sell out after picking up stakes in the following:
- Riverbed Technology, Inc. (NASDAQ: RVBD), in which Elliott took a huge stake in 2014. The company was sold off to a consortium — led by private equity firm Thoma Bravo, a firm specializing in investing in technology companies.
- Thoma Bravo also bought Compuware Corporation (NASDAQ: CPWR) in 2014, two years after Elliott bought a stake and offered $2.3 billion for a buyout.
- Blue Coat Systems Inc (NASDAQ: BCSI) was also bought by Thoma Bravo in 2012 after Elliott's interference.
- Novell, which was chased by Elliott, was bought by Thoma Bravo in 2010.
Cognizant shares closed Monday's session up 6.95 percent at $56.95.
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