Nomura buys 2.7% in Cognizant, sparks speculation about return of activist investor

BENGALURU: Cognizant's stock price experienced a surge of over 2.5% in early trading on the Nasdaq on Thursday, fuelled by speculation about the potential return of an activist investor in the company. This development reported by financial content platform Seekingalpha comes nearly eight years after Elliott Management, which held a 4% stake in Cognizant, attempted to influence the US IT firm's strategy before exiting in 2018.
Japanese financial services group Nomura Holdings has acquired a significant stake in Cognizant, purchasing 13.3 million shares, equivalent to 2.7% of the company's shares in the March quarter of this year. This acquisition positions Nomura as the seventh-largest shareholder in Cognizant. According to a report by Gordon Haskett's Don Bilson, as cited on seekingalpha.com, "Nomura, viewed as a counterparty for activist swap positions, is noteworthy as the prime broker is well known for putting activists into stocks. Cognizant looks like it could be ripe for activism, especially relative to the performance of its peer Accenture (ACN) in recent years." Cognizant's performance has been subpar compared to some of its other Indian IT peers.
An email sent to Cognizant on the development didn’t elicit a response till the time of going to the press.
In 2016, Elliott Management presented a three-part value enhancement plan to revitalize Cognizant's growth, which included operational improvements, efficient capital allocation, and effective oversight and incentive alignment. The activist investor pressured Cognizant to increase its operating margin from 19-20% to 23% by 2018. In response to Elliott's demands, Cognizant agreed to appoint three independent directors and return $3.4 billion to shareholders in 2017. Elliott exited its position in Cognizant just over a year later.
However, in 2022, Cognizant's board has urged shareholders to vote against a proposal that would grant shareholders holding 10% or more of the company's shares the authority to call a special shareholder meeting. The board's recommendation against this proposal serves as a protective measure against activist investors with short-term objectives.