- On Tuesday, Starboard Value disclosed it had purchased a 7.5% stake in cloud storage company Box.
- The activist hedge fund will now be the third-largest stakeholder in the company behind the Vanguard Group and BlackRock.
- Starboard has waged proxy wars in the past, and most notably laid the groundwork for Verizon's acquisition of Yahoo when it successfully negotiated four board seats away from the search company's existing investors.
- We spoke to analysts, who say that Box's recent ups-and-downs on the public markets made it an attractive target for an activist investor - and that Box should expect anything from layoffs and cost reductions, to a sale to a larger rival.
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Tuesday might go down as a turning point for cloud storage company Box.
According to a regulatory filing, activist hedge fund Starboard Value purchased 11 million shares of the company, giving it a 7.5% stake. That makes Starboard the third-largest stakeholder in Box, behind Vanguard Group and BlackRock.
Starboard's involvement is poised to put Box cofounder and CEO Aaron Levie in a predicament, several reports note, because the hedge fund has a track record of waging intense proxy battles for company ownership, ousting existing management, and spearheading major acquisitions.
Perhaps most notably, Starboard is credited with helping make it possible for Verizon to acquire Yahoo in 2016, after it successfully negotiated control of four board seats.
In the filing disclosing its stake, Starboard says only that Box is "undervalued and represented an attractive investment opportunity."
Box CEO Aaron Levie seconded that sentiment on Thursday: "In the case of Starboard and many of our investors, there's a belief we're undervalued right now and there's an opportunity to grow that value," he said on stage at the TechCrunch Sessions
To that end, Business Insider spoke to several analysts, and the consensus appears to be that Starboard's most likely play is to pressure management into improving the company's profit margins. That could, potentially, lead to Box having to cut costs - which could mean layoffs. Besides that, analysts say, Box could well end up get gobbled up by a larger tech company.
"Starboard, as a more value-oriented activist, saw a very good product here and a company that was, let's say, still trying to figure it out and maybe hasn't fully adapted to the fact that the growth rate of the business is a lot lower than they expected it to be a couple of years ago," Jason Ader, cohead of technology equity research for analyst firm William Blair, told Business Insider.
Amid all of this, Box has had a difficult year on the public markets, even as it continues to compete with cloud behemoths like Google and Microsoft in the enterprise cloud storage space. At the time of writing, it was trading around $17 a share. That's up from the $15 or so it was trading at before Starboard announced its stake, but well below its 52-week high of about $25.
"The company is in this purgatory between growth investors and value investors right now, which presents interesting opportunities for activism," Ader said. "An activist could really accelerate growth and attract growth investors, or try to accelerate profitability to attract value investors, but I would think it's more the latter with Starboard."
"While we do not comment on interactions with our investors, Box is committed to maintaining an active and engaged dialogue with stockholders. The Board of Directors and management team are focused on delivering growth and profitability to drive long-term stockholder value as we continue to pioneer the Cloud Content Management market," a Box spokeswoman told Business Insider.
That, too, echoes Levie's comments on Tuesday.
"We're extremely focused on accelerating our growth rate," said Levie. "With Starboard or any other investor, that's what we tend to be focused on."
Here's what we know about Starboard, and what its investment may mean for Box's future.
Rosalie Chan contributed reporting to this story.
