HPE in the crosshairs of an activist investor

The Elliott Investment Management fund announced a few days ago that it had accumulated $1.5 billion in Hewlett Packard Enterprise (HPE) shares. It hasn't said when or at what price, but it's easy to assume it must have been a bargain: HPE's share price has fallen 39% from the first session of the year to the session prior to the stock market surge on Wednesday the 23rd. Its market capitalization is just over $20 billion, so with its investment, it has placed itself among the company's five largest shareholders.

Octogenarian Paul Singer, who has been at the helm of Elliott since 1977, is an "activist investor," the most feared by company executives because where he sets his sights, he lands a bullet: at least fourteen CEOs have lost their positions in companies where Singer has taken control or a significant portion of the capital. The litany with which Singer embellishes his aggressive tactics is that he seeks to extract greater value for shareholders, for which he applies two formulas: the dismantling of companies shortly after acquiring a controlling position and/or a change of leadership because, according to his observers, they are the ones who hinder further expansion of the companies that enter his portfolio. The end result is classic of his activism: divestment after x years.

The Elliott investment fund is known for its aggressive tactics in the firms it controls.

These two tactics seem to be his prescriptions in the case of HPE. Almost immediately, the company's board received a letter from Elliott proposing a frank discussion about the possible replacement of Antonio Neri, CEO since 2018. This position has been poorly received in the sector given the company's current circumstances. After a first quarter of the fiscal year with a 16% increase in revenue (the second quarter will close on April 30) and an expected annual growth rate of between 7% and 11%, revenues for 2025 are estimated at 32.9 billion, and the projection for 2030 is to reach 44.6 billion.

Like any company—and even more so this one, which sells infrastructure hardware—its revenue is heavily influenced by the uncertainty created by Donald Trump's tariff decree. It will likely end up being reduced, according to the lukewarm correction outlined by the US Treasury Secretary.

His first move was to suggest the dismissal of the CEO.

HPE's main vulnerability—and an additional cause of its stock's decline—is the limbo surrounding its $14 billion acquisition of Juniper Networks, which was rejected by the Biden administration's Department of Justice. A court convened for July 9 is expected to rule on the transaction. Elliott has no record of a position on the deal, but questioning the continued operation of Neri, the architect of the deal, at this stage could be counterproductive in any case, according to many analysts and distributors of the brand.

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Neri has vigorously defended the acquisition, which was agreed upon with a single target: the data center networking business line, experiencing booming demand and closely associated with concerns about cybersecurity. According to the executive, the authorities are mistaken in their analysis of this market segment, applying a generic corrective: if the government veto prevailed, he warned, there would be less competition, not more. And the biggest beneficiaries, if the transaction were thwarted, would be Cisco's leadership and Huawei's impetuous rise, in contradiction with restrictions on the use of Chinese technology in communications infrastructure. The context is fluid, but Elliott is playing with loaded dice.