Fed up, IBM’s top shareholders turn to activist investors for help
Annoyed by 11 straight quarters of diminished revenues, IBM’s top shareholders are turning to activist investors in hopes of jostling the company out of its stupor. According to sources familiar with the situation, it seems the shareholders aren’t having much luck as both Jeffery Ubben’s ValueAct Capital and Bill Ackman’s Pershing Square Capital Management both refused to get involved.
The sources said that ValueAct and Pershing Square recently considered IBM, but decided against it; neither of the two have commented at this time.
The $15 billion ValueAct had a role in bringing about leadership change at Microsoft Corp (MSFT.O), while the $20 billion Pershing Square helped revive Canada’s No.2 railway, Canadian Pacific (CP.TO).
ValueAct may have declined due to the potential for a conflict of interest, as the company has a place on the board of Microsoft, which competes with IBM in certain markets.
According to sources who didn’t wish to be named, International Business Machines Corp (IBM.N) is collaborating with two investment banks to cobble up a defense strategy, as the IT behemoth is scared it will be attacked by prominent activist hedge funds.
IBM was recently quoted, “IBM is continuing to execute on our strategy, making investments in growth areas such as analytics and cloud, reinventing our core franchises, and returning capital to shareholders. We are managing the company for the long term.”
In early 2012, at the time Virginia Rometty was made chief executive, Wall Street was hopeful that growth would improve on her watch. The former systems engineer had been applauded by analysts for her role in IBM’s 2002 acquisition of PricewaterhouseCoopers Consulting.
However, sources said that some of IBM’s investors became disillusioned with the company’s management as revenues faltered year after year. In 2014, IBM withdrew its long-term operating earnings target for 2015, and now shares are down 25% from their March 2013 levels.
Several sources have said that the price of IBM’s stock, which is trading at around $159, is too costly and that structural problems within the company cannot be easily solved.
Additionally, sources said that some investors approve of Rometty’s performance and believe she is making the best of a bad situation, and therefore doesn’t exhibit the characteristics of an underperforming CEO.
Two of the sources said there are no discussions between IBM and any activist investor at this time, but that IBM’s advisers are teaching the company’s board how to handle an activist and to carry out a strategic alternative analysis.
Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) is a major investor in IBM. Since Buffett has a tendency to side with management, his presence may cause activists to feel wary about getting involved.
IBM, worth $157 billion today, was once the go-to company for mainframe computers, and in recent years has branched into security software and cloud services, but growth in these two areas has been too dismal to compensate for deficiencies in other areas. In 2014, revenue tumbled to $93 billion, down from $107 billion in 2011.