Elliott Management participates in Hewlett Packard Enterprise – how can it create

Business: Hewlett Packard Enterprise It is a global company with a predominance to the cloud. Provides open and intelligent technological solutions as a service. The company offers cloud services, calculation calculations, high -performance and artificial intelligence, intelligent advantage, software and memory. Its segments include a server, a hybrid cloud, an intelligent edge, financial services, corporate investments and others. Server segments offers consist of general purpose servers for multiple -forming calculations, optimized work and integrated systems. His hybrid cloud segment offers a number of cloud and hybrid solutions in terms of memory, private clouds and infrastructure software as a space space. His intelligent Edge segment offers wired and wireless local networks, campus, branch and switching data centers and others. Its financial services segment provides flexible investment solutions such as leasing, financing, IT consumption, public utilities and asset management services.

Stock: $ 19.88 billion (USD 15.14 per share)

The main driving force of HPE seems to be poor realization and loss of credibility on the market. In Q1 HPE he reported a decrease in net revenues In your main server. The company assigned this loss to the improper valuation of servers in relation to the cost of inventory that were left unnoticed until the late quarter. As a result, the supplies sold rapidly during the day After the company's earnings. Meanwhile, Dell announced the beating of both revenues and the margin in the same quarter. However, this is not an isolated incident, but the latest in the history of worse results. Since the resumption of trade in NYSE at the end of 2018, it exalted with HPE returns by over 200%.

While its server is the main business for HPE, many possibilities are about the network industry. It is a higher multiple business that Dell is not there. HPE intelligent business business is one-third of the company's and network peers, such as Cisco Trade at 12 times EBITDA. If the intelligent edge were exchanged on this many, it would be worth almost the whole value of the HPE company. This leaves a significant value of the company's basic server company and its activities in the field of storage in the cloud, even if these companies still traded in 5 times EBITDA. This value increases significantly with better management and management efficiency, which should lead these companies to 7 times many Dell transactions. In addition, while the HPE distinguishing feature is its high multiple company, the main distinguishing feature of Dell is computer and desktop activity with a low multiple, so it can be justified that HPE analogous companies should trade with a higher multiple than Dell.

There is also a serious uncertainty that hangs over HPE – its expected acquisition of the Juniper network, as well as in the HPE and Cisco networks. Originally announced agreement worth $ 14 billion in January 2024He was detained. At the beginning of this year, the Department of Justice he sued to block the acquisitionsaying that he will do it Eliminate competition. This uncertainty puts HPE at a key point of inflection, which he does not like by nature – especially when management has no achievement of experienced implementation. Potential complications are clear here: if the contract is blocked, HPE would have over 25% of its market capitalization in net cash, which prompted the fears that management could pursue a hasty and risky acquisition to compensate for this unsuccessful transaction. And vice versa, if the contract ends, taking into account the recent HPE enforcement errors, investors may worry if the company will be able to effectively integrate the activities of juniper. So, despite the fact that the acquisition of Juniper significantly improved the HPE profitability mixture to almost 50% of the assigned higher network industry, many market participants may look at it as a defeat. But with appropriate supervision it should be won.

Here Elliott appears as a potential creator of HPE values. With sufficient representation of shareholders in the board, which restores the confidence that the company will be willing to adapt to the values ​​of shareholders, the uncertainty of juniper may change into a great occasion for shareholders, regardless of whether it closes or not. If the contract is blocked and there is a strong representation of shareholders in the board, shareholders will be sure that a large net cash position will be used wisely, whether through careful and disciplined acquisition of value to create value, or buy back actions at these reduced values. If the contract closes, the shareholders will have more confidence that the refreshed board will do better work in the field of juniper integration. Elliott is today one of the most prolific investors of activists with the history of effective and successful strategic activism in the technology sector. Over the past 10 years, the company has involved 25 technology companies and provided an average return of 20.60% compared to 8.56% for Russell 2000 in the same periods. However, in six of these 25 situations in which Elliott received the representation of the management board, the company returned an average of 45.53% compared to 15.35% for Russell 2000 in the same periods. Importantly, Elliott has a deep knowledge of Juniper, previously involved the company in 2014-2015. In this commitment, Elliott called for a lot of allocation of capital and strategic initiatives, ultimately definitely for satisfying Place of the Management Board for Gary Daichendt and Kevin Denuccio. In particular, Denuccio is Still on the Juniper board Today.

Although we believe that Elliott's activist campaign and the value in HPe are convincing in relation to the full cycle of activists, taking into account today's economic climate, we could not mention the tariff. HPE is probably in a better position than Dell to face some geopolitical wind. Most HPE servers are in line with the United States Mine-Tanade agreement and is produced in Mexico. However, a significant part of PC Dell products is produced in China, and therefore is much more exposed to the risk of tariffs.

Ken Squire is the founder and president of the 13D monitor, institutional research service for shareholders activists and the founder and head of the 13D Activist Fund portfolio, an investment fund that invests in the portfolio of 13D activists.