Box takes fight with activist investor public in SEC filing ' TechCrunch

Today's SEC filing and accompanying press release provided a detailed timeline that outlines the relationship between Box's current leadership team and Starboard, an activist shareholder. Starboard has proposed a slate for the board, but Box is attempting to thwart it. They want to shake up the company's leadership and sell it.According to the SEC filing, Starboard has had a long series of phone calls, meetings, and other communications with Starboard since September 2019. Starboard holds a greater than 5% stake in Box. Box shares have increased by approximately $10 per share since then.Today's news is multifaceted. We have learned more about Starboards demands for Box to sell itself; how strongly Aaron Levie, co-founder, and CEO, was fired by the investor; and that Starboard requested to participate in the transaction despite public statements regarding its participation in the KKR-led investment in Box.Activist investors are a little like short-sellers. They can be groups you like or don't like. However, the Box filing can provide us with a lot of information. This includes the time and communication required to manage an investor's public-market investment from its perspective.Below are key excerpts of Boxs SEC filings on the matter. They start with Starboard's early stake and agreement.Representatives of Starboard reached out to Mr. Levie on September 3, 2019 to inform him that Starboard would soon be filing aSchedule 13D, with the SEC reporting a 7.5% stake in the company.Ms. Barsamian and Mr. ODriscoll spoke to Starboard representatives on March 9, 2020. They discussed the possibility of entering into a settlement with Starboard.Starboard and the company entered into an agreement on March 22, 2020 [.]Starboard also reported beneficial ownership of 7.7% outstanding Class A common stock on March 23, 2020.Then, Box reported earnings which Starboard seemed to be proud of:The company announced its fiscal first quarter results on May 27, 2020. It reported a 13% increase year-over year revenue, a 900-basis point increase year-over year GAAP operating margin, and a $36.4million increase year-over year cash flow from operations. Starboard representative Peter Feld and Mr. Levie exchanged emails about the first quarter results. Mr. Feld said that you guys are on an excellent path. Congratulations to the team.Starboard also reported on May 29, 2020 that it had reduced its beneficial ownership by 6.0% of outstanding Class A common stocks.The same pattern was repeated in Box's next earnings report.Starboard met with Mr. Levie and Mr. Smith on August 27, 2020 to discuss the earnings release. Starboard expressed satisfaction with the company's margin expansion rate and the direction it was headed. M. Feld and M. Levie exchanged emails about the company's results. Mr. Feld said that he was delighted to see the company break out and perform better on both the top and bottom lines. We appreciate you guys being there for us and listening to our advice. It is not common for everyone to behave this way, and it is appreciated. It shows your leadership skills and adaptability. It is very impressive.Box then reported its quarter-end results. This was followed by Starboard's change of message (emphasis TechCrunch).The company released its fiscal third quarter results on December 1, 2020. It reported a 11% increase year-over year in revenue, a 2100 basis point improvement in year over year GAAP operating margin, and a $36,000,000 increase in cash flow from operations. The company provided guidance on its fiscal fourth quarter results. It noted that its revised revenue guidance was due in part to lower professional service bookings than previously noted, which creates an approximately $2 million headwind, and that the company was being prudent with its growth expectations given the macroeconomic difficulties that our customers face.Box's common stock fell approximately 9% on December 2, 2020 from $18.54 to $16.91 at its previous close. Box IR met with Starboard representatives on December 2, 2020, and December 4, 2020 to discuss the earnings release of Box. Starboard demanded that the company investigate a sale of the entire business or fire the CEO. This was despite the previous support provided by Mr. Feld to the company. Further, Mr. Feld stated that Starboard would not be willing to sell the company at this price and suggested that the company accept an offer from a third-party to purchase the company in its low twenties.Remember that Box shares now trade in the mid-$26s. Box shares were worth less at that time (emphasis on TechCrunch).The stock price of the company closed at $18.85 on December 16, 2020, just two weeks after earnings. This was higher than the closing price immediately before the announcement of its fiscal third quarter results.Starboard announced on January 11, 2021 that it had increased its beneficial owner to 7.9% of outstanding Class A common stock.On January 15, 2021 Mr. Lazar, Ms. Barsamian and Starboard representatives spoke on the phone. Ms. Barsamian and Mr. Lazar spoke on the phone with Starboard representatives. He stated that while Convertible Senior Notes of the company were executed at favorable terms, he wasn't supportive of the transaction. He repeated his demand that the company be sold and stated that it would have to replace its CEO or face a Starboard proxy contest.Box purchased SignRequest over the next few months and reported its earnings. It also engaged outside parties to increase shareholder value. The KKR deal was then announced.The Strategy Committee met on March 31, 2021 to discuss the status and future prospects of the strategic review. The Strategy Committee received a proposal by KKR at that time. KKR and some partners were to make an initial investment in convertible preferred stock with a yield of 3%. This was lower than KKR's proposal of 7% in its preliminary indications of interest in March.Boxs board unanimously approved the deal, which was announced on April 8, 2021. Starboard wasn't thrilled about the transaction.Ms. Mayer, Mr. Lazar and Starboard representatives spoke to them later on April 8, 2021. Starboard expressed its dismay at the results of the strategic evaluation. During the conversation Mr. Feld stated that he would immediately stop the fight if Mr. Levie was replaced.Ms. Mayer and Mr. Lazar called Mr. Feld on April 14, 2021. Ms. Mayer, Mr. Lazar and Ms. Barsamian had a call with Mr. Feld. He stated that Starboard would not sell its Class A common stock for $21 or $22 per shares. This was contrary to his previous statements. As a gesture of good will, Mr. Feld asked that the company free KKR of its obligation to vote for the company. Starboards desire for Mr. Levie to be replaced as CEO was reiterated by Mr. Feld, who indicated that he would like the opportunity to join the Board of Directors. Ms. Mayer offered Mr. Feld an opportunity to sign a non-disclosure contract to get more information about the strategy review process. Mr. Feld declined immediately.Feld was not allowed to sit on the board, as Box thought.Ms. Mayer, Mr. Lazar and Starboard representatives spoke on April 20, 2021. Mr. Feld stated that Starboard would not proceed with its planned director nominees if Starboard was offered the chance to take part in the KKR Led Transaction and Mr. Feld were elected to the Board of Director. Feld stated again that he would not sign a nondisclosure agreement.On April 27, 2021 Mr. Park met with Mr. Feld. During the conversation, Mr. Feld expressed his desire that Starboard participate in the KKR Led Transaction as an investor.Ms. Mayer, Mr. Lazar and Mr. Feld informed Mr. Feld on April 28, 2021 that while the Board of Directors was open to Starboard participating in the KKR Led Transaction, they would not appoint him as a director. Ms. Mayer and Mr. Lazar informed Mr. Feld that there is no way to settle without him being appointed to the Board of Directors.Starboard then started a proxy war.What can we make of all this? It is possible to shake up a company even though it holds a minority share. Starboard was able to exert influence over Box despite only holding a sub-10% stake. Box refused to allow a CEO to be fired from its board.The irony in all this is that Box is performing better than ever before. It has seen a significant improvement in profitability. In fact, the company exceeded all expectations and increased its forward financial guidance.Boxs history has seen times when it might have been criticized for its poor performance. But now? It's a little strange. It is also worth noting that Starboard has made a lot of money from its Box stake. The company's value has increased sharply since the investor bought it.Media coverage has centered on Starboard's public criticism of the KKR deal, and its private request to be allowed into the deal. This dynamic can be easily explained. Starboard initially believed that the deal would not make it profitable, but it later realized that it could. It changed its tune. If you expect an investor to do anything other than maximize returns, then you're setting yourself up to disappointment.TechCrunch was told by a source close to the company that the current situation should prove beneficial for all parties. However, Starboard does not see it that way. Box's path has been better if you are a short-term shareholder [like Starboard]. Box has a lot more upside for long-term shareholders. The company believes that this is the best way to go for shareholders, and it has been shown to be so, said the person.Alan Pelz-Sharpe is the founder and principal analyst of Deep Analysis. He has been following the content management space for many decades, and says that the current battle is not surprising, given the fact that they have been at odds since the beginning of their relationship.Starboard, like any activist investor, is looking for a quick increase of shareholder values and a turn. Box is committed to the long-term. Starboard might have mistimed their moves or miscalculated them, but Box was clearly not as weak and Box has done well in the past year. Pelz-Sharpe stated that KKR's arrival was the beginning of a major fight back. The proposed changes could not have made it clearer that they are tired of Starboard and ready for a hard fight back.He said that while it is unusual to publicly reveal details about the interactions between two companies, he believes it is appropriate.Although it is not common to name and shame Starboard, detailing their moves and contradictory statements may prove effective. Starboard will not give up without a fight. However, from an investor relations/PR perspective, this looks bad for them. It may be time to walk out. Starboard could still walk away, but I would not bet on it. Silicon Valley is known for moving forward in spite of being in increasingly difficult situations.Next is a vote regarding Boxs board makeup. This should take place later in the summer. Let's see who wins.It is worth noting that Starboard Value was not in touch with us at the time of publication. Box stated that both the press release as well as the SEC filing are sufficient.