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Company: Cognizant Technology Solutions Corp (CTSH)
Business: Recognizing technology solutions Engineers modern companies. The services include artificial intelligence (AI) and other technology services and solutions, advice, application development, system integration, quality technology and assurance. The segments include Health Sciences (HS), Financial Services (FS), products and resources (P&R) as well as communication, media and technology (CMT). The HS segment consists of healthcare service providers and payers as well as biosciences. The FS segment includes banks, capital markets, payments and insurance companies. The P&R segment includes manufacturers, car manufacturers, retailers, consumer goods companies as well as travel and hospitality companies as well as companies that offer logistics, energy and supply services. The CMT segment includes global communication, media and entertainment, educational, information services and technology companies.
Market value: USD 39.13 billion ($ 79.12 per share)
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Cognizant Technology Solutions shares last year
Activist: Mantle Ridge LP
Property: ~ 2.4%
Average costs: n/a
Activist comment: Mantle Ridge was launched by Paul Hilal, an experienced activist who was a former senior partner at Pershing Square. Hilal is an incredibly experienced activist investor with a unique mix of analytical skills, communication skills and sympathy that you rarely see in the activist world. Mantle Ridge is very selective with his investments. While many activists are looking for three to four good ideas a year, Mantle Ridge is looking for a good idea every three to four years. Hilal's approach was generally in constructive contact with the company, to receive the necessary board limit for the given situation, to make the right management team and then to decide how the portfolio of asset can best be optimized. Hilal played a leading role in several Pershing Square investments, including Air Products, Ceridian and Canadian Pacific.
What happens
Mantle Ridge has taken a position of more than 1 billion US dollars in Cognizant Technology Solutions.
Behind the scenes
Cognizant (CTSH) is a global IT service company that specializes in digital transformation, consulting and outsourcing solutions. The industry is strongly concentrated, an oligopoly with the knowledge that competes against large players such as accenture, infosys and capgemini. These companies derive their permanent profitability and growth by designing, implementing, maintaining and developing technology solutions for your corporate customers. Cognizant was founded more than 30 years ago with Kumar Mahadeva as a start-up CEO. Mahadeva was a brilliant businessman who carefully identified the opportunity in front of us. He prioritized the prioritizing pricing and the accelerated growth and believed that this would help to win and keep the best talent in an industry in wear and tear. Under the leadership of Mahadeva and his successors, including Francisco d'Auza, cognizant was massively successful and became one of the largest actors in the industry and grew from his IPO in 1998 to the end of D'Souza's Tenure AS in 2019.
In 2019, Desouza was replaced by Brian Humphries, the former CEO of Vodafone, as CEO by Brian Humphries. This was the first cognizant CEO and the only CEO among his colleagues who was not an industries. In addition, his leadership style was a bad cultural fit for the company and concentrated too much on reducing the costs and characterizing aggressively in a human-oriented environment. In addition, as an industries -outsider, he simply lacked the know -how to surpass important contracts for the finish line compared to the same age, which were able to bring in a respected CEO of the industry in order to complete large offers. As a result, there was an increasing wear and tear of the Cognizant workforce during the Humphries-At time. This was completely against Mahadeva's original insight that the minimization of the employee, in particular the customer of customers, was the key to maintaining long -term growth. Integration processes are very long, expensive, and customers demand continuity. High employee hike disturbs the sales cycles, weakens the customer's trust and makes it difficult to keep and attract new customers. As a result, Cognizant slipped from a first -class actor in organic growth (composed annual growth rate of over 10%, firmly in the top quartile) to an industry. By 2022, the company's ecological growth was up to 900 BPs. This inevitably led to a negative overall trend data of the shareholder during the term of office of Humphries as CEO of -7% compared to 70% and 115% for peers accenture or infosys.
In the second half of 2022, Mantle Ridge began buying the share, which was traded in the high-50 to low 60s. Shortly afterwards on January 12, 2023, Cognizant announced a large restructuring. CEO Brian Humphries would be replaced by the former Infosys President Ravi Kumar, and Chairman Michael Patsalos-Fox would be replaced by the director Stephen Rohleder, a former manager of Accenture. Mantle Ridge was very respectful of the events that gathered in the company and did not make any public comments on these changes. As someone who has closely followed every activist campaign in the past 20 years, we can tell you two things: (I) activists deal with less than 4% of public companies every year and (II) at the same time announce a change from the CEO and chairman. We do not say that Mantle Ridge was the cause of these changes, but the chances that these two things will happen in a vacuum at the same time are astronomically low and we expect the board at least hear the steps.
Since the increase in Kumar and Rohleder, the performance of cognizant has been day and night. As a cognizer for these three success indicators, he initially cognizes a total candidate return of over 30%, which exceeds infosys and accenture that are in the low 20s. The wear was reduced, and 13,000 employees who had left the company have actually returned since this new team was taken over. It is a fairly strong signal for a changing flood, and trust in the company has been restored for some of its most important stakeholders. In addition, the deficit in 2024 in 2024 after several consecutive months of recreation in the fourth quarter of only 30 BISPDs in the fourth quarter of only 30 BISPDs in the fourth quarter of only 30 BISPDS to 100 bit / s has signaled that they will be again in the circuit of winners (TOP Quartil) in the future. After all, profits before interest and tax have expanded and exceeded the goals in the past two years, compared to 15.1% in 2023 to 15.4% in 2024.
One would think that between the replacement of the CEO, chairman and CFO by insiders of the respected industry and this drastically improved results would lead to repeating the shares of knowledge, but the company continues to act with a significant discount for colleagues. Cognizant acts with a total funding value per employee of 119,000 US dollars, while the peers act almost twice as. Despite almost identical generation of sales, the company value of Infosys is almost twice as high as that of knowledge. Despite the clear sign of a continuous closure of the organic growth gap with the peers and the trust of management into the future, the expanded consensus still projects the spread between knowledge and its peers. This is a company that has finally dominated its problems after several years of under -performance, but which the road is not yet ready.
Mantle Ridge is known for the fact that she takes up a great representation of the board regulations in her portfolio company, often the majority, and replaces the CEO. None of this happens here. This is a strong signal that Mantle Ridge Mag the new CEO and supports the measures taken by the board. While we have not been able to identify direct relationships between Hilal and the current board or leaders, he is very well connected in many industries, and we would doubt that there is more than a degree of separation between him and many of the most important actors here. Activists who go into underperformance and take measures is generally a strong sign of potential future shareholder value. What can be an even stronger sign is an activist who comes into an inventory and does not have to act. We see this here and we have the comfort of the activist's existence if things go off track. Mantle Ridge has had a position in society since 2022 (probably through non-13f reporting derivatives) and is now published by Cognizant on March 25, just before the investor Day. We don't believe that this is a coincidence. It is a signal for the company that investors in the investor Week with what Mantle Ridge sees to clarify and the company knows: growth, margins and wear are all in the right direction. The proportion of Mantle Ridge will undoubtedly arouse the interest of the market and increase the turnout for the analyst day. It should signal the street that it is a company that deserves a revised view to adapt to the positive management and performance trends that have been noted for several quarters. If you deal with EBIT/employees and price-performance ratio, the current assessment of the company can be upside down between 35% and 45% if management can continue the march to the circle of the winner.
Ken Squire is the founder and president of 13D monitor, an institutional research service for shareholders, and the founder and portfolio manager of the 13D Activist Fund, an investment fund that invests in an activist 13D investment.