Cognizant bows to Elliot, agrees to return $3.4 billion to shareholders

The board of IT services provider Cognizant Technology Solutions Corp has agreed to return $3.4 billion to shareholders and appoint three new directors, bowing to pressure from activist investor Elliott Management Corp.

Nasdaq-listed Cognizant said its board has approved a plan to return $3.4 billion to shareholders over the next two years through share buybacks and dividend.

Elliott and Cognizant would nominate one director each before the company's annual meeting in June, Cognizant said, adding that it would also appoint another new director before its 2018 annual meeting, subject to Elliott's consent.

Elliott, which held more than 4 per cent stake in Cognizant as of November 2016, had urged Cognizant to consider shaking up its board as one of several steps to boost shareholder value.

Elliott had, in November, urged that Cognizant to consider a $2.5 billion share buyback and dividend payout and initiate acquisitions, among other measures to boost its shares.

The company expects to start the repurchase of $1.5 billion worth of shares in the first quarter, initiate a cash dividend of 15 cents per share in the second quarter and repurchase $1.2 billion worth of shares during 2017 and 2018.

The company has in the past also used the share buyback platform. It is for the first time that Cognizant will be giving back shareholders via dividends.

Cognizant, during the third quarter (July-September), had said they had repurchased about 2.5 million shares for $145 million, and their diluted share count decreased to 608.5 million shares for the quarter.

''As of the end of Q3, we had repurchased 48.8 million shares for a total cost of $2 billion under our stock repurchase authorisation of $3 billion,'' said the company, during the analyst call.

''As part of this plan, the company expects to commence a $1.5-billion accelerated share repurchase program (ASR) in the first quarter of 2017, initiate a regular quarterly cash dividend of $0.15 per share commencing in the second quarter of 2017, and repurchase shares of $1.2 billion in the open market during 2017 and 2018,'' said the company in a statement.

The company also forecast first-quarter revenue between $3.51 billion-$3.55 billion.
 
Cognizant expects adjusted profit for the first quarter to be at least 83 cents below estimates of 86 cents. The company's net income fell to $416 million, or 68 cents per share, in the fourth quarter ended 31 December 2016, from $424 million, or 69 cents per share, a year earlier.

Excluding items, Cognizant earned 87 cents per share. Total revenue rose about 7% to $3.46 billion.

Cognizant, which is in the process of beefing up its digital services, said on Wednesday that the company is also intensifying its merger and acquisition efforts.

Elliott had said in November that Cognizant can achieve a value of $80–$90+ per share by the end of this year, representing an upside of 50-69 per cent in just over a year.

Cognizant's shares were up about 3 per cent at $55.50 in premarket trading on Wednesday.
 
As of Tuesday's close, Cognizant had a market capitalization of $32.63 billion.