Box Contested Shareholder Vote
Thoughts on Box, Inc Shareholder Vote
In the past few weeks some of you may have received calls from firms seeking your vote at Box, Inc’s contested shareholder election. For separately managed account holders, while you give White Brook Capital the ability to trade, deduct fees, and vote your proxy, you are the beneficial owner of the company’s stock certificate. The stock registry, reflects this, so you receive these calls - as I do.
Box Inc has been a long term position for White Brook Capital. It has remained a position, always amongst our largest, because of the low probability that the stock would decline meaningfully - given its significant asset value and market position - and the potential for very significant upside. Despite this year’s good performance, it has underperformed our expectations.
That said, a series of changes over the past two years have dramatically improved the company. These changes, which started before Starboard Value, a successful activist fund, took a position in Box, accelerated during their ownership. Many of the changes since they became involved are a reflection of direction they gave the company. Those changes have made Box a stronger company, well positioned for the time that they are in as the business world transitions to remote-first working.
In the contested election White Brook intends to vote with management, however.
Today, Box’s board is arguably amongst the best in all of software. While I believe there is one director who should be replaced, he is not up for election this year. Further changes this year we believe would worsen the Board and the Company’s position in the future. To my mind, Starboard should have waited to engage as confrontationally as they have this year. The Company’s execution is improved, market trends are bending even more in their favor, the product is improving, and potential acquirers will be better suited to acquire in 2022 having either digested previous acquisitions, or with more clarity of the extent of potential anti-trust challenges they face than they are today.
The vote is September 9th.
My expectation is that if Starboard wins the vote, the stock will react favorably. I think our investment in the Company, however, will be worse off. The Company’s board will be worse off and while the company will be put for sale, it will be premature, and the price commanded will be relatively low.
If Starboard loses the vote and exits, my expectation is that the stock will react unfavorably and be weak for months as Starboard and similarly minded shareholders exit their positions. That said, I think the upside is actually greater in a year’s time.
If Starboard loses the vote, but remains an investor in the Company, we’ll have the best of both worlds. Management will either execute or be out of a job in a year’s time. Interim selling pressure will be more limited, and management, if they do not execute, will not survive another proxy contest next year.
As always, feel free to reach out to discuss this or any of your investments at White Brook Capital. I thank you for your support and will strive to continue to earn your trust.
Basil F Alsikafi
White Brook Capital, LLC
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