People around the Starbucks cafe in Shenzhen, China.
Jakub Porzycki | Only photo |
In May, it was a $2.5 billion investment in Texas Instruments and a position of over $1 billion in Johnson ControlsIn June, a $2 billion investment was made in Southwest Airlines and an equally large investment in the Japanese conglomerate SoftBank.
For a $69.7 billion hedge fund, Elliott Management was active this summer – even by its own standards – at a scale and frequency that has given pause to even the most seasoned activism defense advisers.
But his biggest victory this year was Starbucksstarting with private discussions about Elliott's multi-billion dollar stake and ending with a CEO change that was welcomed by investors and activists.
It wasn't just the replacement of a deeply unpopular CEO with a food industry legend or the nearly unprecedented run-up in Starbucks stock that drove it to its best day in more than 20 years. It was Elliott's months-long push that produced a result that thrilled shareholders and pleased Chairman Emeritus Howard Schultz and the board itself.
A deal put the company on a “transformative” path, said one consultant who has worked with both activists and corporations. With the exception of former CEO Laxman Narasimhan, virtually everyone involved with Starbucks liked it.
Private negotiations become public
By June, Elliott had amassed a roughly $1.9 billion position in Starbucks and had begun talks with the company, say people familiar with the matter who requested anonymity to freely discuss private matters. The activist investor's green-and-white letterhead caught the attention of executives and media who expect the company's plans will likely include firing an underperforming CEO. Narasimhan, who was the coffee chain's boss until Tuesday, seemed to meet those requirements.
Starbucks shares had fallen about 24% since Narasimhan took office in March 2023. The company struggled with falling store sales in the U.S., where customer traffic fell 6% in the third quarter, and in China, the company's second-largest market outside North America, where store sales fell 14%.
Elliott met separately with Narasimhan and then-Chairman Mellody Hobson in late June, the people said. The company was still reeling from its disastrous earnings report and falling global demand. The activist's representatives stressed in both meetings that immediate action was needed, the people said.
But as CNBC previously reported, Elliott did not ask Starbucks to fire Narasimhan.
Operational restructuring and disruptions in the boardrooms
Rather, a detailed presentation was made to Starbucks' board in early July detailing a strategy review, with particular attention to Starbucks' ailing China business and changes to the board, people familiar with the matter said.
And unlike some of his other campaigns – Southwest and Texas Instruments, for example – these conversations were kept confidential.
Elliott found the talks constructive, but it also became clear that significant changes were needed to prevent Starbucks' poor performance from becoming so drastic that public action – possibly in the form of one of Elliott's much-vaunted letters – was required, the people said.
News of the activist's position at the company was nevertheless published in the Wall Street Journal on July 19, sparking a flood of attention and criticism. In the days that followed, coverage focused on Schultz's continued influence, including an article in the Financial Times that said the company's founder was opposed to the deal offered by Elliott.
Negotiations continued, with activist representatives meeting in a more informal setting with about three-quarters of the company's board in July and August, the people said. But the talks took place against a backdrop of constant leaks that people familiar with the deal said could only have come from the board.
A surprising departure
Elliott had not expressed an explicit desire to hire a new CEO, but those involved in the talks are certain that without Elliott's pressure, the board would not have tried to hire Chipotle's Brian Niccol as CEO successor.
Hobson, who resigned as chairman at the same time as Niccol's appointment to become lead independent director, said on CNBC's “Squawk Box” that the company had not had any discussions with Elliott about Niccol's appointment.
“We look forward to speaking with all of our shareholders about this new development,” the co-CEO of Ariel Investments told CNBC on Tuesday.
But people close to Elliott admit that while Narasimhan's departure was a surprise to the activist, Starbucks' hiring of Niccol exceeded everything they had hoped for.
The former CEO of Chipotle was responsible for a dramatic turnaround and modernization of the company, driving a share price increase of over 770% since 2018.
He also overhauled the way it handles mobile orders, a major sticking point for Starbucks, which is struggling with a flood of mobile orders in its stores.
Narasimhan learned of his firing on Sunday, the Wall Street Journal reported. When the news broke on Tuesday, Starbucks shares rose 25 percent, notching their best day since the company went public in 1992. And while Elliott never called for Narasimhan's firing, there were likely no complaints in West Palm Beach or Midtown Manhattan, where the company maintains two of its offices.
Niccol's appointment is “a transformational step forward” for Starbucks, said Elliott CEO Jesse Cohn and partner Marc Steinberg. “We look forward to continuing our collaboration with the board as it works to realize Starbucks' full potential.”
Representatives for Starbucks and Narasimhan did not immediately respond to a request for comment.
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