Jana Partners may have a three-pronged plan to create value at Zendesk


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Company: Zendesk Inc. (ZEN)

Business: Zendesk is a software development company that provides “software as a service” solutions for tracking, prioritizing and resolving customer support tickets across various channels. The company’s offerings include Zendesk Chat, a live chat software for connecting with customers on websites, apps, and mobile devices; Zendesk Talk, a cloud-based call center software; Zendesk Guide, a knowledge base that powers customer self-service and support agent productivity; Zendesk Gather, a community forum software that allows end users to connect and collaborate; Zendesk Sell, a customer relationship management (CRM) product solution to improve productivity, processes and pipeline visibility; Zendesk Explore, which provides analytics for organizations to measure and improve the customer experience; Zendesk Sunshine, a CRM platform; Sunshine Conversations, a messaging platform solution; Zendesk Embeddables, which enables developers to integrate experiences across the web and mobile apps; Zendesk APIs that allow users to build custom integrations and interact with Zendesk data; Zendesk applications that allow businesses to customize interfaces to Zendesk product and platform solutions and optimize workflow through plug-ins; and Zendesk Suite, an omnichannel offer, which combines its solutions.

Stock market value: $ 11.6 billion ($ 96.88 per share)

Activist: Jana Partners

Percentage of ownership: about 2.0%

Average cost: n / A

Activist commentary: Jana Partners is a very experienced and very successful activist investor in the information technology industry. Jana’s returns in this industry are on average 24.02% versus 7.64% for the S&P 500 over the same time frame. Jana rarely sends public letters to boards of directors. They are not activists, but will only engage when they feel they can either create meaningful shareholder value or stop the deterioration of shareholder value. In this case, they could potentially do both.

What is happening?

In the wings:

The first thing Jana can do to create shareholder value is to lead the fight against the merger of Zendesk and Momentive. Jana explains why this transaction should not take place, including: (i) the company completes its largest acquisition to date at a higher valuation using undervalued equity; (ii) it runs counter to the successful historical strategic direction and direction of the company; (iii) Zendesk was already experiencing execution issues with its current business; and (iv) it makes Zendesk much less attractive to a potential acquirer of its business.

But you don’t have to take Jana at her word – the market has spoken loudly. Since the deal was announced, shares of Zendesk have fallen by almost 20% and Momentive by about 25% (as of market close on Dec. 3 in an otherwise flat market. Additionally, shareholders of Momentive are not very happy either – activist investor and shareholder of Momentive, Legion Partners, was quick to oppose the deal. The deal is so bad it could be one of the few mergers, if any, for history to be rejected by both parties.The mere act of ending this transaction should create tremendous shareholder value.

Once that happens, the second thing Jana could do to create shareholder value like they’ve done in many other companies is to bring an experienced and new perspective to the board. Given the execution issues the company has experienced and this recent misstep, the board and management could certainly benefit from adding shareholder orientation. As Jana does with most of their active engagements, and as they mention in their letter, they work with a team of public company directors and executives with relevant industry experience who would likely be excellent candidates for the board. administration. The company’s CEO, Mikkel Svane, is also its founder, and he’s clearly brilliant, but he may not be the best person to run the day-to-day operations of a public company. Plus, Senior Director Carl Bass isn’t a fan of activists: When hired by activists as CEO of Autodesk, he calls them sports fans who think they know more than coaches. and the owners. Less than a year later, he was no longer CEO of Autodesk. If he’s not careful, he may experience a similar result here as he is running for re-election in 2022.

The best thing the board can do for itself is to decide quickly to terminate the merger agreement in response to the will of the shareholders. If instead the deal is terminated because shareholders vote against it, as it looks like it will, history has shown this to be great support for the activist and against management. and allow the activist access to the board of directors at the next annual meeting if they choose to do so. Additionally, at last year’s annual meeting there were already signs of shareholder dissatisfaction – Hilarie Koplow-McAdams and Michelle Wilson, two of the three directors who voted, received 40.04% and 37, 43% of the votes against them.

This would lead to the third value creation opportunity here – a sale of the business to a strategy. In 2016, when the email from Salesforce board member Colin Powell was hacked, it was revealed that Zendesk was on Salesforce’s M&A target list, but their perspective was that the CEO of Zendesk was not interested in the sale. Likewise, private equity has shown interest with nothing to show for it. Well, an involved activist usually puts a business in a pseudo-game, and a board that’s about to lose in a proxy fight is suddenly prompted to sell the business if they think they’re going to s. ‘get out of it one way or another.

Ken Squire is the founder and chairman of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist investments. .


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