UPDATED 16:12 EST / MAY 10 2021

CLOUD

Setting stage for proxy fight, Starboard nominates four directors to Box’s board

Activist investor Starboard Value LP wants to replace four of the directors on Box Inc.’s board following what it says is a several-year streak of ”substantial underperformance” by the company.

The move sets the stage for a potential proxy fight. Starboard informed Box investors that it’s looking to nominate four new directors in an open letter today.

One of the nominees would replace Box Chief Executive Officer Aaron Levie (pictured) on the company’s board. The investment firm is asking investors to approve the candidates at the cloud-based file-sharing provider’s next annual shareholder event.

Starboard took a position in Box in late 2019 and is one of its largest shareholders, with about an 8% stake. The firm argues that Box’s stock price has underperformed compared with industry peers and the company therefore needs to implement business changes to drive shareholder value. Starboard hopes that placing four new directors on the Box board will advance the proposed changes. 

“Our investment thesis focused on a clear opportunity to drive profitable growth, improved capital allocation, and enhanced governance in order to address the significant valuation gap between Box and its closest peers,” Starboard stated in its letter to Box investors today. “Unfortunately, despite repeated promises by management and the Board to address these issues over the past two years and to create shareholder value, performance has not sufficiently improved.”

Box pushed back in a statement a few hours later. The company pointed out that it increased revenues by 11% during its most recent fiscal year while achieving an adjusted operating margin of more than 15%, which translated into a $127 million increase in free cash flow. Box also noted it has added six independent directors to the board since 2018. 

“The Box Board of Directors does not believe the changes to the Board proposed by Starboard are warranted or in the best interests of all stockholders,” the company stated. “The Box Board has been consistently responsive to feedback from all of its stockholders, including suggestions from Starboard, and open-minded toward all value enhancing opportunities.”

Two of the independent directors Box has appointed since 2018 joined last year as part of a deal with Starboard. More recently, the company a few weeks ago raised $500 million from investment firm KKR & Co. Inc. in a move widely seen as an attempt to fend off further pressure from Starboard. Box will use most of the capital for stock buybacks.

Box at one point reportedly also considered a sale. However, it’s believed that the KKR investment took a sale off the table, and the company is now focused on implementing a plan to continue the revenue momentum it achieved in its last fiscal year. Box is aiming for 12% to 16% higher revenues by fiscal 2024 with operating margins of between 23% and 27%.

Box competes with the likes of Google LLC and Dropbox Inc. in the cloud file-sharing market. 

Photo: The Demo Conference/Flickr

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