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Citrix VARs Protest Elliott Management Activist Makeover Plan
Solution providers say activist investor Elliott Management Group's all-out bid to remake Citrix Systems through the sale of major business units and the paring down of its channel ranks is sure to wreak havoc at the beleaguered virtualization software maker.
The CEO of a Citrix Gold enterprise partner, who did not want to be identified, complained that Elliott Management is nothing but a "financial piranha" and that its involvement is sure to lead to deep cuts and chaos at the company.
"Elliott Management is all about forcing the company to do unnatural things," he said. "It's all about money for them. They have no interest in how well the business is doing and what technology breakthroughs are coming. They want to sell some of the pieces of the company off and make money off their investment. They are financial piranhas."
The pressure from activist investors such as Elliott Management is causing turmoil in the sales trenches at the end of each quarter for the companies they target, he said. "It all filters down to the field with OEMs freaking out at the end of the quarter making calls to VARs and customers to close deals," he said. "It is brutal."
In a Securities and Exchange filing Thursday, the powerful New York-based hedge fund controlled by activist investor Paul Singer disclosed it now has a 7.1 percent stake in the struggling Fort Lauderdale, Fla.-based software vendor.
In a letter to Citrix's board included in the public filing, Senior Portfolio Manager Jesse Cohn requested to meet with the full board in the coming weeks in order to present Elliott Management's "New Citrix Plan" and discuss "necessary steps for its implementation." The letter outlined a number of areas in which Elliott Management thinks Citrix needs to improve, including its channel sales strategy.
"Citrix's channel strategy is stretched across too many channel partners, with important channel-enablement resources being directed to sub-scale partners. We are confident all of these issues are fixable through a full realignment to implement best practices in the areas of deal team composition, sales management span of control, channel management and compensation structure," Cohn said in the letter.
Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 232 on the CRN 2015 Solution Provider 500, said activist investor bids usually end badly for technology vendors.
"Historically, we have seen these fiscally driven initiatives from activist investors be more hurtful than helpful," said Venero. "We have seen activist bids like this wreck companies in the past. As a big Citrix partner, we hope that isn't the case with this deal."
At least one partner sees a silver lining in Elliott Management's move to overhaul Citrix.
"This could give them a shot in the arm," said the CEO of an East Coast Citrix partner, who did not want to be identified, noting that he has been frustrated by the vendor's inability to help fund large deals.
Eilliott Management's Cohn, who has been forcefully asserting himself of late in the tech sector, told Citrix leaders the company is in need of "fundamental change" -- and noted that Citrix has resisted public calls to change its game over the past few years.
In that time, the company has endured operational struggles, declining profits and margins and an exodus of top talent. Cohn partly blamed those disappointing results on an unfocused approach in which the company dedicated development and marketing resources to noncore products, including its GoTo conferencing services and NetScaler application delivery hardware.
Promises from Citrix's leaders in 2010 and 2014 to make the company more efficient and more focused were not met, Cohn noted.
"Citrix has always maintained an ongoing dialogue with our shareholders, and we welcome their input. We will review Elliott's suggestions and respond as we do with all shareholders who engage with us. The Citrix Board and management team continually evaluate ideas to drive shareholder value and are committed to acting in the best interests of all our shareholders," Citrix said in a statement.
The Elliott Management letter said it would prefer for Citrix to embrace its cooperation but warned it also is "prepared to push for change directly."
With a comprehensive restructuring, Cohn said he believes Citrix could increase its stock by 50 percent -- to somewhere between $90 and $100 a share by the end of 2016.
But Elliott Management, and Cohn, have a history of breaking up distressed tech companies, and many believe that's the end game with Citrix.
Earlier this year, Elliott Management tried to split up EMC, but ultimately settled for a nine-month standstill with the IT giant. Elliott Management has been involved in the affairs of Riverbed Technologies, BMC and Juniper Networks, and influenced shareholders to approve the sales of Compuware and Novell.
As part of its plan to remake Citrix, Elliott Management said it has retained a consulting firm that is conducting a survey of Citrix's customers and channel partners to better understand the competitive landscape they face.
Cohn singled out the company's GoTo franchise and NetScaler assets as product lines that are rich in value and therefore ripe for the auction block since they are not part of the company's core focus. He also listed several "underperforming" Citrix products that he believes are distractions from the company's core portfolio: CloudBridge, CloudPlatform and ByteMobile.
Citrix shares rose 7 percent, or $4.50, to $70.47 Thursday after Elliott Management took its stake in the company.
STEVEN BURKE contributed to this story.
PUBLISHED JUNE 11, 2015