Activist Investor Elliott Picks a Fight for Change at HPE

Elliott Management has infiltrated the shareholder ranks of Hewlett Packard Enterprise, reportedly snatching up $1.5 billion worth of HPE’s stock with the goal of turning around a company that has lost more than a fourth of its market value this year.

The server provider — which split off from the consumer-facing printer and PC company HP a decade ago — disappointed investors last month when it predicted its second-quarter and full-year earnings would come in below analysts’ expectations. The company pointed to deep discounting in the industry as it struggled to sell both AI and traditional servers. 

To offset its losses, HPE has a plan to slash overhead with layoffs affecting about 5% of its workforce. Elliott is said to have other ideas about how HPE can boost its bottom line — though it hasn’t yet shared the deets.

Change Starts From Within

Activist investors are like the business world’s “Property Brothers,” flipping struggling companies instead of derelict houses. Often specialty hedge funds, the investors buy a stake in a company to try to force change from within, usually to boost the company’s shares (though sometimes they have other aims). 

Elliott is one of the best-known activist investors because it has a history of going after industry titans and managed nearly $70 billion worth of assets as of last summer. That includes stakes at Southwest and Starbucks, where the firm pushed for strategy shifts resulting in changes that haven’t always been popular with customers:

• Several big changes at Southwest Airlines, including scrapping its famous two-bags-fly-free policy, came as a result of Elliott flexing its 11% stake in the company. 
• The recent shakeup at Starbucks that saw the coffee giant swap its CEO and pour its olive-oil lattes down the drain was also sparked by Elliott’s investment.

Upping the Ante: Buying a stake isn’t always enough leverage for activist investors like Elliott to incite change. If a minority stake fails to bend execs’ ears, activist investors can wage a proxy fight where they rally shareholders to elect new board members and force change from the top. Elliott is currently in a proxy fight with oil refiner Phillips 66, whose execs have defended the company’s results and refused to overhaul the board. It currently has 14 members serving staggered three-year terms, 10 of whom are scheduled to keep their seats through 2026 or 2027. Next month, shareholders will choose between seven Elliott-selected board candidates and four picked by Phillips 66.