Shares of Salesforce (NYSE: CRM) were down 7.3% on Monday amid reports the cloud-based customer relationship management (CRM) platform provider is in late-stage talks to acquire data-management software company Informatica(NYSE: INFA). Informatica stock also dropped around 6.5% today.
Why investors aren't pleased that Salesforce might acquire Informatica
Sources speaking to the Wall Street Journal over the weekend say Salesforce is in "advanced talks" to acquire Informatica. With Informatica's market capitalization sitting just below $11 billion this morning, the deal would be one of Saleforce's largest -- though also still well below the nearly $28 billion price tag it paid to purchase Slack Technologies three years ago. With just over $14 billion in cash on hand at the end of its most recent quarter, Salesforce could potentially fully fund a deal without diluting existing shareholders.
But given its incredible penchant for acquisitions (having purchased more than 70 companies since 2006), Salesforce has attracted numerous activist investors in recent quarters, calling for it to turn its focus instead to cutting costs and boosting profits, all while maximizing organic growth and boosting capital returns through share buybacks. Just last month, Salesforce even disbanded a committee focused on mergers and acquisitions in an effort to appease those activist investors.
What's next for Salesforce investors?
There are no guarantees, of course, that Salesforce and Informatica will come to a formal agreement. But news of this potential acquisition has brought fears of renewed proxy battles from activist investors back to the forefront. If that means diverting Salesforce's attention away from focusing on existing operations as it fosters yet another mammoth business integration, it's hard to blame some weary investors for selling in response today.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Salesforce. The Motley Fool has a disclosure policy.
