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Salesforce's hedge fund hotel fills up amid Elliott pressure

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Feb 16, 2023
Photo illustration of Paul Singer and Marc Benioff.

Elliott co-founder Paul Singer and Salesforce co-founder Marc Benioff. Photo illustration: Shoshana Gordon/Axios. Photos: Stefan Wermuth/Bloomberg, Jonathan Moscrop/Getty Image

Details of hedge fund investments into Salesforce emerged Wednesday, revealing some significant bets at a critical and uncertain time for the company.

Why it matters: Activist Elliott Management stands to benefit from a pack of hedgies supporting its battle for changes at Marc Benioff's company, though Salesforce has a few fund allies building stakes as well.

Driving the news: Fund managers released mandated 13F filings on Wednesday, shedding light for the first time on some of the CRM (Salesforce's ticker) stakes owned by the five activist managers involved with the company at the moment.

  • 13Fs are required 45 days after a quarter, so this week's disclosures only reflect positions owned as of Dec. 31 of last year and don't show what's been purchased from Jan. 1 onward.
  • Starboard Value, the activist that agitated against Salesforce back in October, disclosed a stake of 3 million shares, worth $400 million — an ownership likely worth above half a billion dollars today, factoring in the stock rally. The size of Starboard's stake confirms it will not sit quietly.
  • Activist investor ValueAct, seen as a Benioff ally that just earned a Salesforce board seat, said it owned 560,00 shares worth $74 million.
  • Inclusive Capital, the activist fund started by ValueAct's founder Jeff Ubben, said it owned $216 million worth of Salesforce shares.

Catch up quick: Salesforce delivers earnings on March 1, a key moment for the company to show its progression. Two weeks later is the deadline for shareholders to nominate directors to the board.

Of note: The size of Elliott's actual position is still unknown, though reports put it at several billion dollars' worth of stock. By comparison, Elliott's investment in fellow large-cap stock AT&T back in 2019 was around $3 billion.

  • Elliott's 13F did not list CRM, meaning it started accumulating common stock starting last month.
  • The same is true for Third Point, which also doesn't show CRM in its 13F. Reports say Third Point is yet another activist scooping up Salesforce shares.
  • With five activist managers associated with Salesforce and dozens of event-driven hedge funds likely buying into the name, the company is officially now a hedge fund hotel in Wall Street terminology, preyed on by a "wolf pack" or a "swarm" of active funds.

Zoom in: For Elliott to succeed with its campaign — which could range from forcing Salesforce to spin off Slack to forcing Benioff to step down — it will need more than a few hedge funds to support it.

  • Proxy contests are won with a "50 + 1" vote, meaning the company and its agitator fight for a simple majority of shareholder support at the AGM.
  • In Salesforce's case, nearly 25% of its stock is held by just four funds: The Big Three index funds (Vanguard, BlackRock and State Street), plus T. Rowe Price.

💭 Michael's thought bubble: Elliott does not want a proxy fight. As big and powerful as the fund is, it's rarely taken a company to a vote. Benioff doesn't, either, knowing Salesforce's underperformance makes that majority support math tricky.

  • Look for Salesforce to announce some major strategic moves on March 1 to get Elliott and others off its back, and to announce aggressive growth and cost targets that garner the hedge fund's support, and possibly some kind of settlement. If not, buckle up.
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