Salesforce is now facing the very real threat of activist shareholders overthrowing its board and forcing the sale of mega-acquisitions like Slack and Tableau

• Salesforce is now being targeted by a second activist investor: Elliott Management.
• Activist investors could overhaul Salesforce's board and force it to divest acquisitions like Slack. 
• Salesforce's entire board is up for reelection this year, giving activists a window to act.

Salesforce has had a turbulent few months, including massive layoffs and an executive exodus that included a co-chief executive. But the real chaos may be yet to come.

The cloud software giant is now being targeted by activist firm Elliott Management, which has taken a big stake in the company. That makes Elliott the second such firm to take aim at Salesforce, after Starboard Value disclosed its stake in the company in October as it pushed for cost-cutting at the company. 

In the short term, the move has Salesforce employees worried about more layoffs to come beyond those already announced, as these activists push CEO Marc Benioff to show greater profit margins, Insider reported this week. 

In the longer term, however, Wall Street insiders believe that Elliott's involvement could signal more changes beyond just cost-cutting.

It's a very real possibility that these investors could oust most, if not all, of Salesforce's board of directors in one go. And if that wasn't enough, some analysts believe that these activist firms could push Benioff to at least explore the possibility of divesting mega-acquisitions like Slack, MuleSoft, and Tableau. It could even result in Salesforce ending its remote-work policies and mandating at least some employees to come back into the office, analysts speculate.

Salesforce, unlike many other tech companies, only appoints its board members to serve for one-year terms, meaning they have to be reelected by shareholders every single year. JMP Securities analyst Pat Walravens tells Insider that Elliott and Starboard could take advantage of the situation by mustering the support to replace many or most of those board seats with their own candidates at this year's meeting later this year.

That's not necessarily a bad thing, he said: Five members of Salesforce's board members, including Benioff himself, have held their seats for fifteen years; Walravens believes that they could target those old hands and try to bring in some fresh blood with new ideas for the company.

"I think there's pretty broad agreement that the board of directors needs to be refreshed," Walravens said. 

Some want Salesforce to sell Slack and Tableau

Salesforce has been criticized for the sky-high $27.7 billion it paid for workplace messaging app Slack, especially since that deal came so soon after the sizable acquisitions of companies like data analysis firm Tableau and data integration company MuleSoft.

Many of those acquisitions, particularly Slack, were masterminded by Bret Taylor — the former co-CEO of Salesforce who stepped down in a surprise move late last year. In the wake of Taylor's departure, some believe the involvement of the activist investors may push Salesforce towards recouping some of that investment by selling off those businesses. 

"Salesforce has been in 'empire building' mode for too long and should focus more on its core market opportunities," RBC analysts wrote in a note to clients this week. It continued: "One way to still extract value from assets we view as non-core is through divestiture."

However, Salesforce likely wouldn't get the full amount it paid for Slack if it sold it under current market conditions, RBC notes. However, it thinks that some acquisitions like MuleSoft, ClickSoftware, or Heroku would turn a profit if they were to be sold off, while minimizing disruptions to the business.

Salesforce could return to the office and revamp executive compensation

Elliott and Starboard could also push for relatively smaller, but no less meaningful changes, too. 

Walravens says that the activist firms could encourage Salesforce to rethink its office strategy. The company has invested a lot in a global real estate footprint including its Salesforce Tower headquarters in San Francisco. Those offices are now sitting largely empty as the company embraced remote work during the pandemic. While the company has downsized some of its office space as the tech market turns down, it still has a lot.

For some context, Benioff himself has indicated some willingness to bring employees back to the office: He recently faced backlash inside the company after suggesting that remote work may be responsible for lower productivity among employees hired during the pandemic years. Now, Salesforce may want to follow through and make sure its expensive real estate actually gets used.

Another change that Walravens thinks could be in the cards is a revamping of compensation, particularly for executives.

He says he thinks Elliott and Starboard might nudge Salesforce towards ending its practice of giving senior leaders major equity grants, instead encouraging a pay scheme that's tied to performance-based goals. That would allow the board — which may come under activist control anyway — to direct Benioff's team towards spending their time and energy in specific areas, Walravens said. 

Ultimately, Elliott Management has extensive experience in controlling its targets at the board level. It recently placed one of its own on the board of Pinterest, ending a boardroom battle that began last summer. So Salesforce should expect changes ahead, said David Larcker, a professor at Stanford Graduate School of Business. 

"They've studied this company a lot and they understand it probably as well as the board does," Larcker said. "This is something the board's going to have to pay attention to."

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