Elliott ManagementCorp. has proposed a value-maximizing plan to the board and managementof CDK Global Inc., sayingthe plan could drive share prices up by 72% to around $81 per share in 14 months.
Elliott Management manages Elliott Associates LP and Elliott International LP, which collectively own 8.6% ofthe common stock and equivalents of CDK Global.
In a May 4 letter, Elliot Management Senior Portfolio ManagerJesse Cohn said CDK Global presents an opportunity to create value given that highlyinefficient operations and a suboptimal capital structure following its separationfrom Automatic Data Processing Inc.Cohn argued that, since the spinoff, and in the 19 months since CDK Global has beenpublic, little has been done to capture this opportunity. Despite its attractivebusiness model and strong competitive position, CDK Global is profoundly under-managed,according to the letter.
Under the two-pronged plan, Elliot Management proposed that CDKGlobal improve operations and enhance capital return. CDK Global should announcethat it is increasing its full-year 2018 EBITDA margin target to 42% from 35% andis committed to improving operating performance quickly and decisively, the investorsaid. The company should also accelerate its capital return plan by committing torepurchase $1.0 billion of stock through the end of calendar year 2016 funded withnew debt and balance-sheet cash as well as announce a new long-term capital returnplan comprised of ongoing buybacks funded by both cash proceeds generated by maintaininga 3.0x net leverage target and returning 65% of annual free cash flow.