Last week activist investor Starboard issued a public letter reprimanding the company for what it considers to be underperforming. Today, the company, which owns 8% of Box shares, making it the company’s largest shareholder, has gone one step further with an official list of four candidates to be put up at the next shareholders meeting.
While the company reprocessed many of the same complaints as in last week’s letter, this week specifically stated its intention to create its own candidate list for the box board. “For this reason, in accordance with the company’s governance deadlines and in order to safeguard our rights as shareholders, we have formally sent Box a formal notice asking for four highly qualified Board nominees (the“ Nominees ”) to be elected to the Board of Directors at the annual meeting be proposed. Starboard wrote a public letter to Box.
Box responded in a press release that the currently constituted board of directors categorically opposes this attempt by Starboard to take additional seats.
“Box’s Board of Directors does not believe that the Board changes proposed by Starboard are warranted or in the best interests of all shareholders. The Box Board has consistently responded to feedback from all shareholders, including Starboard’s suggestions, and is open to any value-adding opportunities. In addition, Starboard’s statements do not accurately reflect the progress Box has made, ”the board wrote in a statement this morning.
Box also notes that the company revamped its board of directors over the past year and three new directors received specific approval from Starboard.
What is driving Starboard to carry out this action? Like any good activist investor, they want a higher share price and more Box growth. Activist investors often come in and use brute force to gain value when they find the company is underperforming. The endgame in which they succeeded could be removing Levie as CEO or more likely to sell the company and make its profit on the way out.
Box claimed that “Starboard’s statements do not accurately reflect the progress Box has made,” and highlighted some of its recent financial accomplishments, including “a $ 127 million increase in free cash flow in fiscal 2021.” The former darling of the private market also argued that its revenue growth rate for fiscal 2021 plus the free cash flow margin [came to more than] 26% “, which exceeded his own target of 25% and was” almost twice as high “as in fiscal 2020.
This is a good time for a ‘Yes but‘: Yes, but Box’s ability to improve its profitability doesn’t change the fact that its growth rate has been steadily declining for years. And while a company’s growth rate can cover just about any sin, the slowdown in growth, which has already slipped into single digits, isn’t letting Box much off. (For reference, in the final quarter, the fourth quarter of fiscal 2021, Box grew only 8% year over year.)
It’s worth noting that the company promised “accelerated growth and higher operating margins in the coming years” in its latest earnings call, but the company’s recent $ 500 million investment by KKR particularly annoyed Starboard, which claims that it was comparable to buying the company vote. ‘
“[Box] We made several poor capital allocation decisions, including the recent completion of a financing transaction that we believe will not serve a business purpose and that was conducted at the 2021 AGM in the face of a possible election campaign with Starboard. “
Now it will be a battle for more seats on the board. Box appoints Levie, Verisign CFO Dana Evan and Peter Leav, McAfee’s chief executive officer and former BMC chief executive officer.
Starboard nominees include Deborah S. Conrad, former executive at Intel; Peter A. Feld, Starboard Research Director; John R. McCormack, former CEO of WebSense; and Xavier D. Williams, director of American Virtual Cloud Technologies.
The vote takes place at the box’s shareholders meeting, which traditionally takes place in late June or early July. As of now, the company has not publicly disclosed the exact date.