General
May 11, 2021
5 minutes read

Markets: Box, KKR Tie-Up Opposed By Activist Investor Starboard

An activist shareholder in cloud storage company Box, Inc. (NYSE: BOX) is opposing a tie-up between the company and private…

An activist shareholder in cloud storage company Box, Inc. (NYSE: BOX) is opposing a tie-up between the company and private equity firm KKR, under which the firm recently entered an agreement to invest $500mn in Box in exchange for an 11% stake in the public company.

That activist shareholder is Starboard Value, a hedge fund that first disclosed an ownership stake in Box in 2019 and has since haggled with the company for major changes to its business as well as leadership positions.

In light of the recent tie-up between Box and KKR, Starboard on Monday sent Box a letter noting that it opposed KKR’s investment in the company, calling it “a financing transaction that we believe serves no business purpose”.

Other bits in Starboard’s letter include its nomination of three board directors to Box, including one to replace Box CEO Aaron Levie, implying that the hedge fund wants him off Box’s board.

Starboard’s opposition to KKR’s Box investment isn’t surprising, given that it’ll give KKR a bigger stake than it holds in Box and thus more sway over the company’s operations. Starboard has a 7.7% stake in Box while KKR’s investment as agreed to will give it an 11% stake in Box consisting of preferred stock with a 3% dividend.

With its opposition, Starboard has made it clear that it’s not in favor of the alliance between Box and KKR, an alliance that gives Box a fresh $500mn mostly to be used for stock buybacks, possibly Starboard’s stake included.

Starboard has fought with Box on the grounds that the company isn’t doing enough to strengthen its business and thus is pushing for changes to enact that. It’s an activist investor with a history of pulling such battles with companies it buys positions in.

Box in defense has pressed that Starboard is conflating its financial performance, highlighting some recent stats including “a $127 million increase in free cash flow in fiscal 2021.”

Though, it’s true that Box’s revenue growth rate has lagged for years, growing just 8% year-over-year in its most recent fiscal quarter. Also, Box hasn’t been profitable on a net basis for the past few years, making its thin growth rates harder to justify.

As it appears, Starboard’s opposition to KKR’s alliance with Box isn’t enough to topple it, with KKR having much more financial power in the battle and poised to come out on top. In fact, KKR’s investment in Box could mark an end to the company’s battles with Starboard, an end probably long-awaited by its CEO Aaron Levie.