Bloomberg news reported yesterday that Akamai has brought on Morgan Stanley to conduct a strategic review to evaluate its options, including a recommendation for a potential sale.
Last month, Elliott Management disclosed it had acquired 6.5 percent of Akamai shares. In its regulatory filing, Elliott said it wanted to “engage in a dialogue” with Akamai officials about improving fiscal performance and business operations, including a “potential strategic review or sale process”.
In last month’s activist 13D filing, Elliott said it planned to consider making proposals about the company’s operations, board, management, capital allocation process and whether a potential strategic review or sale of the business or its assets made sense. The influential hedge fund said it would also think about whether it would seek to participate in any transaction, which suggested that its own private equity unit, Evergreen Coast Capital, may be interested in buying Akamai or taking part in a joint acquisition.
Elliott specifically said it would advocate for plans that benefited shareholders.
“We believe that such securities are significantly undervalued and represent an attractive investment opportunity,” the investment firm wrote in the SEC filing. “There are numerous operation and strategic opportunities to maximize shareholder value.”
Bringing on Morgan Stanley as a consultant seems to be the next natural progression of the activists’ new role in the CDN giant. Representatives for Akamai and Morgan Stanley did not reply to Bloomberg’s request for comments; and Bloomberg left its source anonymous.
Elliott Management is led by notorious billionaire Paul Singer and is one of the world’s largest activist hedge funds with assets of over $39 billion. When its new role in Akamai was announced, The Boston Globe wrote, “having Elliott acquire a position in a company is usually an ominous development for management”, noting previous companies that have been targets of its shareholder activism, including oil giant Hess Corp. and South Korean conglomerate Samsung Corp.
Following the news regarding Morgan Stanley’s hire, shares in Akamai rose Tuesday by 5.6 percent in New York. By the end of the day, the company’s shares closed up nearly 2.5 percent, leaving the CDN with a market value of around $11.4 billion as shares hit $67.49.
While Akamai has diversified to become a major provider of network security services, it has also been struggling to maintain its core business as the world’s leading content delivery network, losing business to competition in recent years.
As we wrote last month, Akamai should have been AWS and only failed to do so because they focused too exclusively on CDN.
Its most significant media customers – Amazon, Apple, Facebook, Google, Microsoft and Netflix – are starting to build some of the tools that Akamai offers in-house. This has caused Akamai’s combined revenue from those six users alone to fall from $379.3 million a year in 2015 to $250.4 million in 2016.
Bloomberg was careful to say in its report that “people familiar with the matter” said, “the company may [still] choose not to proceed with any strategic changes”. Some industry figures speculated that it is possible that Morgan Stanley, which has an activist defense team, could also be advising Akamai on how to defend itself from Elliott.
In 2015, Morgan Stanley brought on David Rosewater as a Managing Director to head its activism-defense team. Rosewater was previously a partner at Schulte Roth & Zabel LLP where he advised many prominent activists, including Trian Fund Management’s Nelson Peltz and Elliott Management’s own Paul Singer.