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Aaron Levie now lives a basic nightmare when Starboard invests in Box




Aaron Levie, co-founder and CEO of Box Inc., is now living the nightmare that all founders of the tech company hope to avoid.

Tuesday shares of Box Inc. shares

BOX, + 1.50%

up 8% in afternoon trading after activist hedge fund Starboard Value LP revealed in a regulatory filing that it has purchased 11 million shares, or a stake of 7.5 %, in the cloud storage company. This position will make Starboard the third largest shareholder in Box, after the Vanguard Group and Black Rock, according to Factset.

The difference with these investors is that Starboard is a well-known activist investor. Lately, Starboard has rattled the cages of many companies. In tech, especially since then, Yahoo bought a company that negotiated a total of four seats on the Internet Pioneer's board in April 201[ads1]6, paving the way for sales to Verizon Communications Inc.

VZ, -0.21%

VZ, -0.21%

a few months later.

Starboard only said in its 13-D filing that it believes Box shares, “when purchased, were undervalued and represented an attractive investment opportunity. "It also said it could lead to discussions with management, shareholders or other third parties about the investment," including potential business combinations or dispositions involving the issue, "and make recommendations on ownership structure, board composition, capitalization and or potential business combinations.

Box shares are actually down 12% so far this year, and the last two quarterly earnings reports were met with downgrades or price targets for Wall Street analysts as revenue growth has slowed and it has been lubricated with class action lawsuits.

"Although we do not comment on interaction with our investors, Box is committed to maintaining an active and engaged dialogue with shareholder rs," officials said in a statement. "The board and management team are focused on delivering growth and profitability to drive long-term shareholder value as we continue to pioneer the market for cloud content management." Levie was not available for an interview.

When Box went public in early 2015, it did what many technology companies have done. It was published with two-class shares, giving the founders and insiders 98.8% of the company's voting power.

In June of last year, Box did the right thing in terms of investors and general corporate governance – it ended the life of the two-class controlling stock, just as the SEC Commissioner Robert Jackson has advocated. In June 2018, all Box's outstanding B shares converted to the same number of A shares. Gone was the control of the company's founders and insiders, including Levie. At the same time, Box has opened up to activist investors who are lobbying for change, or who hope the company will be acquired or make some acquisitions to stimulate growth.

It remains to be seen exactly what Starboard will do next, but it is quite likely that it will push for an acquisition or the company to buy, in light of the results of the past two quarters. Ironically, Box could become the poster child of the worst-case scenario for companies that want to do the right thing by getting rid of their two-class shares.



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