Shares of Conduent (NYSE:CNDT) were trading about 25% higher as of 1:30 p.m. EDT Monday, after activist investment firm Trillium Capital released an open letter to the board of directors. In the missive, Trillium outlined ways it believes the business process services company can maximize shareholder value.
Trillium holds over 2.5 million shares of Conduent, and it's frustrated since, though the stock has lost nearly 70% of its value of the past year, its board has thus far been unwilling to respond to Trillium's overtures. The firm argues that Conduent can unlock $3.9 billion of incremental enterprise value if it follows Trillium's suggestions, compared to its current enterprise value of $1.9 billion.
Trillium does not believe that Conduent has the right management team in place, and further argued that executive leadership should collectively own more stock to align their interests with shareholders. The company is trying to reduce costs by $100 million per year, but Trillium says that there has been "no significant progress to date" regarding the goal.
While the COVID-19 pandemic has created significant macroeconomic uncertainties, Trillium believes that Conduent is positioned to help companies navigate the return to work. The activist investor offers specific suggestions for different business segments, such as incorporating artificial intelligence (AI) and machine learning in the transportation service business or expanding legal services in the commercial business, among others.
Trillium also presented a sum-of-the-parts analysis that suggests that Conduent could unlock value by either divesting or spinning off each business segment as separate public companies.
"Finally, if the Board is not prepared to separate the three Business segments, restructure the cost base and deal with the management issues that we have described above to unlock the substantial untapped shareholder value, then we believe the Board has a fiduciary duty to put Conduent in its entirety up for sale," Trillium writes. "We do not necessarily believe this will bring maximum value to shareholders, but we do believe that it is a better alternative than the current course of action."