Most of what I hear when I talk to people in the community about Elliott and Citrix isn’t good (just check out the comments on Brian’s recent articles), and there is a lot of concern over what Elliott has done with other companies in an effort to make a buck. They think the changes are too sweeping, and that this is going to be a good old-fashioned corporate raid. I’ve got news for you, Citrix is a publicly traded company in business to make money above all else, and it is broken. We’ve known for a while that they’ve lost a huge chunk of their seemingly insurmountable lead over VMware in recent years, largely due to product decisions and the loss of key personnel, but it appears they’re broken as a company, too.
Most people seem to fear that Elliott is going come in just long enough to sell off all the things that have any value, prop up the share price, then cash out, leaving a burned out husk of a company. They’re quick to point out that history shows Elliott being associated with companies that have died off while making the shareholders a lot of money, and we all know that Wall Street can be heartless and cold, so why would this play out with Citrix any differently?
Before we get too far, though, let’s back up. Put Elliott aside and ask yourself “What does Citrix do that is really awesome?” The answer most people will say is XenDesktop and XenApp. Others will say NetScaler, but it’s mostly because they’re using it with XenApp and XenDesktop. You’re not likely to hear GoTo, ShareFile, and XenMobile, and you’re definitely not going to hear Podio, ByteMobile, or Cloud.com (or whatever that turned into within Citrix).
Face it–the only thing that Citrix does that’s really awesome is desktop virtualization, yet they have all this other stuff, too.
Now ask yourself about which market Citrix is currently the undisputed leader in.
Desktop virtualization, maybe? But VMware...
Maybe they’re the undisputed leader in "social/work blended media platforms for team organization” or whatever segment Podio occupies?
The point is, Citrix does a LOT of stuff, but they no longer have the “undisputed leader” tag on anything they do, especially their bread-and-butter desktop virtualization. Many consultants and customers I talk to believe it to be the better product, but that’s the problem. We have a situation where there is an excellent product in an under-performing company that people can’t identify as the clear cut leader.
That’s where Elliott comes in. I’m reminded of a line from Grosse Pointe Blank, a movie about a hired assassin (John Cusack) who was beginning to feel guilt about his job. He rationalized it this way:
“If I show up at your door, chances are you did something to bring me there.”
As a significant shareholder in Citrix (7.5%—almost 1 billion dollars worth of their stock), they wield a certain power that they aim at protecting their investments and…making money. The approach is pretty common, and they’ve used it before: acquire a significant interest in a broken company, then force change. It sounds like the heavy handed man coming in and pushing out the little guy, but we’re not talking about small companies here. We’re talking about Novell, Compuware, BMC, Hess, and, of course, Citrix.
In each case, Elliott was troubled by a company’s loss of focus on their core competencies. For example, Elliott made an offer to buy Novell, stating that the company "has attempted to diversify away from its legacy division with a series of acquisitions and changes in strategic focus that have largely been unsuccessful.” What of that isn’t 100% true? Elliott offered $5.75 per share for a total of $1 billion, which Novell rejected. To be clear, Elliott didn’t want to get into the software game and run Novell. They wanted to own Novell for just long enough to pare it down and sell it at a profit. Novell rejected the offer, but later sold to Attachmate for $2.2 billion while Elliott was still a shareholder. Mission accomplished.
(Those of you who have paid attention to the struggle of Novell over the years will note that Attachmate was recently acquired for $1.2 billion. Yeah, that was a big loss. But Elliott didn’t do that. Years of playing the hands they were dealt the wrong way by Novell and Attachmate did that. Novell was broken before Elliott got there.)
The proposed “fix” is the same for Citrix as it was for the other companies, too. Elliott wants Citrix to spin off or sell non-core areas of Citrix. These include ByteMobile and GoTo (which already have For Sale signs on them) as well as CloudBridge, CloudPlatform, and NetScaler. This sounds aggressive, but can you honestly say that Citrix is better with them than without?
For the record, I disagree with the notion that NetScaler is not a core product. NetScaler is all but required for any comprehensive XenApp/XenDesktop deployment. To get rid of NetScaler now would leave a void in the features of the platform that would worsen the position of XenApp and XenDesktop in the industry. So while NetScaler has value outside of world of the Xens, Citrix can’t just sell it off without replacing the functionality.
Citrix selling off their non-core assets can focus them on what they do best, and that sounds good to me. I know that a lot of the words thrown around are roundabout ways of saying that people are going to lose their jobs, and that really sucks, but if Citrix were really doing well none of this would be happening. Again, can you honestly say that your opinion of Citrix today is higher than it was five or ten years ago?
Before we get too far ahead of ourselves, though, let’s keep everything in perspective. The current situation has Elliott’s Jesse Cohn taking a seat on the board. That’s a single seat on a ten-person board. Yes, that wields a lot more influence than a typical shareholder, and even more so considering that he will be partly responsible for choosing a new CEO as Mark T retires, but it’s still just one seat. Elliott’s letter and subsequent involvement with the company didn’t put Citrix in the position they’re currently in. The shakeup is in response to to the situation that Citrix put themselves in, just like it was for Novell, Hess, BMC, and Compuware.
You might disagree with the motivation to make money for the shareholders, but that’s what happens when a company goes public. There’s nothing you or I can do about that. Priorities shift from "having the best technology just for the sake of having the best technology while making some scratch on the side" to "having the best technology so that you can sell enough licenses to prop up the revenue just enough to meet forecasts and keep your shareholders happy from quarter to quarter.”
Currently, none of that is happening. So far, Citrix has agreed to sell off ByteMobile and GoTo and is currently looking for buyers. Elliott has agreed not to shake things up for one year, though they will have influence over choosing replacements for two departing board members and Mark Templeton, who is retiring. Think back to the first time Mark T retired—we wanted someone who could guide Citrix into the future, who could shake up a company that was dangerously close to losing its lead. That board ended up sticking with Mark, but this is a new board, and we can expect a new type of CEO.
Whether any of this is good or bad remains to be seen. Citrix trimming away those businesses that don’t fit into core makes a lot of sense and can go a long way towards fixing what made Citrix awesome. Some would say that XenApp and XenDesktop are not technologies for the future, and they’d be right, but in order for Citrix to have a chance they need to reset, get back to what they do best, then figure out the next course of action. So I’ll watch, and I’ll hope that they’re making decisions that are the best for the product and the business.