Cognizant Says It Has Already Had 'Introductory Discussion' With Activist Investor Elliott Management

Cognizant said it has already held an "introductory discussion" with Elliott Management Monday following the release of a letter from the high-profile activist investor demanding a board shakeup and a $2.5 billion stock buyback.

In a terse three-paragraph response to the 16-page letter from Elliott Management Senior Portfolio Manager Jesse Cohn, Cognizant said it "welcomes open communications with all of its shareholders and values their input."

"Cognizant had an introductory discussion with Elliott [Management] upon receipt of the letter this morning. The company intends to review the letter carefully and will respond in due course," according to Cognizant's response.

[Related: Activist Investor Elliott Management To Cognizant: It's Time To Shake Up Board, Buy Back $2.5B Shares]

The letter from Cohn calls for Cognizant to implement a detailed Value Enhancement Plan aimed at driving up share prices by 50 percent to 69 percent over the next year to $80 to $90.

Following the release of Elliott Management's letter Monday morning, Cognizant's stock jumped to a high of $58 but retreated to $56.93 just before the close of the market.

Elliott Management, which now holds a 4 percent stake in the Teaneck, N.J.-based solution provider, is one of Cognizant's four largest shareholders.

"Cognizant has underperformed its core IT services peers by 83 percent despite growing revenue at a 22 percent CAGR (compound annual growth rate) versus the peer average growth of a 16 percent CAGR over the most recent fiscal quarters," Cohn wrote in the letter.

Cohn in his letter said Cognizant – No. 7 on the 2016 CRN Solution Provider 500 -- would benefit from "directors with new experience, skills and perspectives," noting that more than "half of Cognizant's directors have been with the board" for at least nine years, including four board members that have been with the company for more than 13 years.

Cohn also called for the formation of an operating committee of the board tasked with direct oversight for implementing the Elliott Management Value Enhancement Plan, which would establish a $2.5 billion share repurchase plan, the institution of a long-term capital return program, and fund future acquisitions with 25 percent of the company's annual U.S. free cash flow and $1 billion in foreign cash.

The Elliott Management "base case" assumes that Cognizant exits fiscal year 2018 with $5.3 billion of net cash on hand, Cohn said in the letter.