Elliott/Vista/Citrix: going back for seconds risks indigestion

Activist investors rarely target the same company twice. Elliott Management is the exception. Having done well out of its investment in Citrix Systems the first time, it has returned for seconds.

Together with Vista Equity, Elliott has agreed to take Citrix private in a $16.5bn deal, including debt. The $104-a-share cash offer represents a 24 per cent premium to the software company’s closing price on December 20, before reports of a deal first emerged. But it is far less than the $132 that Citrix shares traded at a year ago.

Elliott will have fond memories. It first bought a stake in Citrix in 2015 when shares were stuck around the $50 mark, exiting in spring 2020 at about $140.

Citrix has only itself to blame for becoming a repeat target. The Florida-based company has long produced software that enables remote working. It benefited from a surge in demand during the early days of the pandemic as corporate America left offices for home.

However it has failed to convert these new customers into permanent ones. It was also slow to move customers to its cloud-based service offerings. After expanding revenues by 7.5 per cent in 2020, they dipped 0.6 per cent in 2021. Worse, net income fell 39 per cent as operating margins more than halved to 7.4 per cent. Successive earnings guidance reductions and the ill-timed $2.25bn acquisition of project management software maker Wrike was the final straw for shareholders.

Improving a mature business such as Citrix bears some scrutiny. The buyers plan to combine Citrix with Tibco Software, one of Vista’s portfolio companies. But no numbers were given on cost savings and whether these, taxed and capitalised, would cover the $1bn premium offered over Citrix’s 60-day moving average price. Citrix’s net debt of $2.8bn, or four times its 2021 ebitda, also leaves little wriggle room for boosting a slow-growing business.

Elliott alone already had five years to wring value out of Citrix. What remains could make a lean supper for two.