Having disclosed a collective 10.3% stake in Commvault Systems Inc. (CVLT, Financial), Paul Singer (Trades, Portfolio)’s Elliott Management is gearing up for a proxy fight.
As one of its largest shareholders, the New York-based activist hedge fund announced in a letter released on Monday that it intends to nominate four candidates to the backup and recovery software developer’s board: Martha Bejar, Wendy Lane, John McCormack and Chuck Moran.
Elliott Management also encouraged the board to perform an operational review and return capital to investors.
In addition, the firm addressed issues its sees within the Tinton Falls, New Jersey-based company’s business, including margin underperformance, suboptimal financial targets, execution issues and lagging corporate governance, but emphasized these problems are fixable.
"We are optimistic that we can work together with the Board to reach a collaborative agreement that will be in the best interests of the Company and its shareholders," Elliott wrote in the letter to Commvault's board.
To back up its points, Elliott pointed out that while the company’s revenue has increased by 37% since 2013, its operating income has declined 37%.
In addition, its operating margin has declined more than 1,200 basis points over that same period, falling from a high of 17.13% in March of 2014.
The firm believes the company’s stock is also underperforming in relation to its peers, noting that its “recurring execution issues and a dramatic decline in operating income have weighed heavily on the stock.”
“Even companies operating in less attractive market segments with greater secular challenges have managed to operate more efficiently, execute well and ultimately deliver shareholder value,” Elliott said in the letter.
According to GuruFocus, Commvault’s shares gained only 3% in 2017 and have risen 20% year to date.
In response to Elliott’s letter, the company released a statement on Monday:
"Commvault conducts open communications with its stockholders, and the Board of Directors and management team values their input,” it wrote. “Commvault has had initial discussions with Elliott and we go into these discussions with an open mind, a goal of enhancing stockholder value, and optimistic for Commvault’s future."
Following the announcement, shares of Commvault climbed more than 10% Monday morning to around $63.65 with a forward price-earnings ratio of 36.50, a price-book ratio of 7.46 and a price-sales ratio of 4.36. Its market cap is $2.86 billion.
Disclosure: No positions.
