Nomura’s move keeps Cognizant CEO in a fix
Japanese financial major bought 2.7% stake in IT firm; It triggers fears on return of activist investors
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Cognizant under Ravi Kumar is already improving earnings. However, the danger for Ravi Kumar is that Nomura may want to accelerate this and Cognizant needs to invest above the industry rate if it is to return to the industry leading growth and earnings of the past - Peter Bendor Samuel, CEO of Everest Group, a global consultancy firm, tells Bizz Buzz
Bengaluru: Nomura buying stake in Cognizant may put the IT firm’s CEO, Ravi Kumar, in a difficult position at a time he is trying to accelerate the growth of the company. According to analysts, Cognizant’s past experience with activist fund, Elliott Management was not pleasant and the company’s management along with the board will tread cautiously in dealing with Nomura.
Japanese financial services group Nomura Holdings has acquired a significant stake in Cognizant, purchasing 13.3 million shares, equivalent to 2.7 per cent of company’s shares in the March quarter of this year. This acquisition made Nomura as the seventh largest shareholder in the Nasdaq-listed firm.
Such stake buy has raised fears of activist investors taking position in the company after eight years when Elliott Management bought four per cent stake in Cognizant (in 2016) and tried to influence its business strategy.
“We have not heard what the Nomura agenda is yet. However, it is likely to revolve around improving earnings. Cognizant under Ravi (Kumar) is already improving earnings. However, the danger for Ravi (Kumar) is that Nomura may want to accelerate this and Cognizant needs to invest above the industry rate if it is to return to the industry leading growth and earnings of the past,” Peter Bendor Samuel, CEO of Everest Group, a global consultancy firm, told Bizz Buzz.
“Ravi Kumar has strong board support and some of the board members were around during the Elliott activist agenda. They have learned that not all activist ideas are beneficial (for the company). Hence, they are likely to take a cautious position and support the CEO at least in the short run. All this said, an activist investor taking a position in a firm with a new CEO is always trying and this will likely test Ravi at a time, he is focused on turning the firm around,” he added.
Ravi Kumar has been leading Cognizant since January 2023 and taken many initiatives to script a turnaround story after the company’s consistent under performance under his predecessor.
Therefore, investor activists taking position in the company may complicate his efforts to improve Cognizant’s performance.
Last time, when Elliott Management bought stake in the company, it had forced the US-headquartered firm to increase its operating margin from 19-20 per cent to 23 per cent by 2018. During this period, Cognizant agreed to appoint three independent directors and return $3.4 billion to shareholders in 2017. Elliott sold his stake in the company in 2018. Given the experience of Cognizant with respect to Elliott, the company is likely to be cautious in accepting the suggestions of Nomura in coming days.
