Partners To Citrix: Heed Elliott Management's Call To Fix What's 'Foundationally Broken'

Citrix Systems responded to a public letter from activist shareholder Elliott Management late Thursday, as partners told CRN they're hoping the vendor listens to its recommendations.

Elliott Management, New York, N.Y., revealed a 7.1 percent stake in Citrix on Thursday. In a public letter sent to Citrix's board of directors, the firm recommended that Citrix sell or spin off its GoTo line of Software-as-a-Service apps, and suggested that selling its NetScaler application delivery controller business would also make sense.

Elliott also recommended that Citrix reorganize its sales and marketing teams to make them more efficient, cut R&D funding for non-core products and buy back shares, among other actions. Elliott is requesting a meeting with Citrix's board to discuss these options.

[Related: Citrix Systems Mulling Sale Or Spinoff Of Its Online Services Unit]

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Making these and other changes could enable Citrix shares to rise to between $90 and $100 per share by the end of 2016, Elliott said in the letter. Citrix shares were trading at $65.97 Thursday before the letter was published.

The tone of the letter came as no surprise to Citrix partners who have long felt the vendor's solid technology has been undermined by poor operational execution. Several partners told CRN they believe Citrix's business has suffered because it hasn't been willing to make tough-but-necessary changes.

"I see [the Elliott letter] as a really positive development, because Citrix has been foundationally broken for a long time," said one high-ranking executive from a national solution provider and longtime Citrix partner. "The Elliott letter was a little aggressive, but I totally agree with the points it raised."

Gordon Martin, president of PeakUpTime, a Tulsa, Okla.-based Citrix partner, said he's encouraged by the fact that Elliott Management sees growth potential in Citrix.

Taking the steps outlined by Elliott "should drive some efficiencies and perhaps make it easier to do business with Citrix," Martin said.

Sam Coyl, president of Netrepid, a Harrisburg, Pa.-based Citrix partner, also agrees with the message Elliott is sending to Citrix's board.

"I hope they do it amicably and collaboratively," Coyl said of the possibility of strategic collaboration between Elliott and Citrix. "My guess is there is a happy medium that keeps a reasonably broad set of offerings and a lean balance sheet. Citrix is a critical component for our operation and we want the company to thrive."

Elliott also said in the letter that Citrix has too many channel partners, which had led to "important channel-enablement resources being directed to sub-scale partners."

One longtime Citrix partner told CRN the vendor has been taking more business direct since late 2011, when it began handling large accounts through its "high touch" program.

"Citrix makes great technology, but their channel programs are broken. They are basically selling direct, and that approach never scales," said the partner, who didn't want to be named.

Today's situation is a marked contrast to Citrix's early years, when the vendor helped create the idea of a deal registration program in which partners could be protected for the groundwork involved in landing customers, said the partner.

The question now is, will Citrix heed Elliott's advice? Sources told CRN in April that Citrix was considering a sale or spinoff of its online services subsidiary, which includes its GoToMeeting Web conferencing and GoToMyPC remote access apps.

Citrix has also moved NetScaler into its own separate sales organization, a move that could make it easier to spin off, sources familiar with the matter told CRN on Friday.

Citrix didn't respond to a request for comment. But in a statement issued late Thursday, the Fort Lauderdale, Fla.-based vendor gave the following response:

"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."