Activists Target Salesforce, but Another Stock Is Monday's Big Winner

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Wall Street has seemed to have a better attitude about the stock market to start 2023, and investors have liked the results so far. After steep declines in 2022, most major market benchmarks are up since New Year’s Day, and many have seen substantial bounces from their lows. Stock index futures were up slightly before the start of regular trading on Monday morning, suggesting potential upward momentum for investors.

There has been an uptick in interest lately from activist investors looking to take advantage of stocks trading at depressed levels. Activists made their presence felt again on Monday morning as one well-known financial institution in the space took a position in cloud computing pioneer Salesforce (CRM 3.31%). However, the gains for Salesforce stock were small compared to what shareholders in Evoqua Water Technologies (AQUA 2.04%) enjoyed. Read on to learn everything you need to know about both stocks.

Elliott gets in line

Shares of Salesforce climbed between 4% and 5% in premarket trading on Monday morning. The move came after reports that Elliott Investment Management has taken a stake worth several billion dollars in the customer relationship management software specialist.

The Wall Street Journal first reported on the size of the investment, while other news sources quoted one of Elliott’s managing partners, who highlighted the respect that the activist investing company has for Salesforce and co-founder Marc Benioff. The move comes as Salesforce stock has lost more than half its value from its highs in late 2021, although it has rebounded nearly 20% in the past month.

Elliott isn’t the first activist investor to express interest in Salesforce. Starboard Value revealed that it had targeted Salesforce for its own activist endeavors in October, buying an undisclosed number of shares of the software company’s stock. Starboard believed that Salesforce’s margin performance should be much better than it had been in its recent past, noting that some of its industry peers have done a better job of boosting margins.

Most investors expect Salesforce to see modest earnings growth in 2023 but for growth to accelerate in 2024. That could be a motivating factor for activists looking to profit from Salesforce’s recovery, particularly if they can successfully lobby for shareholder-friendly changes at the CRM software giant.

Water, water everywhere

Evoqua Water Technologies stock got an even bigger boost on Monday, rising 15% in premarket trading. The Pittsburgh-based water treatment company got a buyout bid from an industry peer, and shareholders are excited about what it could mean for the combined company going forward and for water stocks generally.

Over the weekend, Evoqua entered into a merger agreement with water engineering company Xylem (XYL 1.43%), according to a filing with the U.S. Securities and Exchange Commission. Under the terms of the deal, Evoqua shareholders would receive 0.48 shares of Xylem stock for every Evoqua share they own. The all-stock deal would involve Evoqua shareholders collectively owning 25% of the combined company, with Xylem shareholders retaining a 75% interest. That implies a $7.5 billion enterprise value for Evoqua.

Xylem is citing rising water risks as a way to bring together two companies that are both looking to address challenges worldwide. In particular, Evoqua’s advanced treatment solutions and services will broaden Xylem’s water solutions capabilities, and Xylem also expects cost synergies to help save $140 million within three years.

For its part, Xylem shares fell 8%, showing a common dynamic in all-stock transactions. Nevertheless, Evoqua and Xylem do appear to be positioned well to capture what will become an increasingly important industry opportunity in water in the years to come.

Dan Caplinger 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.