Shares of Box (BOX 0.72%) dropped as much as 13% today after the company announced a strategic partnership and investment from KKR (KKR 0.29%). The news comes a few weeks after reports suggested that activist investor Starboard Value was pushing for the company to sell itself, and investors seem disappointed that a sale is now likely off the table for the time being. As of 11:15 a.m. EST on Thursday, the stock was still down 9%.
KKR has agreed to lead a $500 million investment in Box, which will come in the form of convertible preferred stock. Box said it plans to use "substantially all" of the proceeds to fund a share repurchase program that will be conducted as a Dutch auction, in which the auctioneer begins with a high asking price and lowers it until some participant accepts the price, or it reaches a predetermined reserve price. Shareholders will self-tender their shares.
The company has not given other details around the tender offer, such as the price, but Box says it will determine those details later based on market conditions when the self-tender is launched. The cloud storage technology company plans to commence the program after it reports fiscal first-quarter earnings next month.
Once the transaction closes, KKR exec John Park will join Box's board, bringing the total number of directors to 10. The preferred stock will have a conversion price of $27, but that conversion price will be lowered if Box's 10-day volume-weighted average price is less than $20.77 for the 10-day period ending on April 21. The minimum conversion price is $24. Additionally, the preferred stock will pay a 3% dividend. On a converted basis, the preferred shares will represent 11% of total shares outstanding, before factoring in buybacks.