Box Inc. (BOX) - Get Report said Thursday that private equity company KKR will lead a $500 million investment in the cloud computing company in the form of convertible preferred stock. Box is planning to use most of the funds to buy back shares.
Shares of the Redwood City, Calif. company were sliding 10.2% to $21.77 at last check.
The investment is expected to close in May. KKR's John Park, head of Americas technology private equity will join Box's board at that time, becoming its tenth member.
Current director Bethany Mayer will be appointed as board chair, effective May 1. Aaron Levie, co-founder and chief executive officer, will continue as CEO after the deal but will step down as chairman.
A self-tender for the buyback, whose pricing and amount of shares has not yet been decided, will begin after Box releases its first-quarter results in May.
Box said in a statement that the investment from KKR "will advance the company’s strategy to deliver the Box Content Cloud and enable customers to modernize how they work and drive digital transformation throughout their organizations."
The company affirmed its commitment of to achieving a revenue growth rate between 12% to 16% and operating margins of between 23% to 27% by fiscal 2024.
“The investment from KKR is a strong vote of confidence in our vision, strategy, and continued efforts to increase growth and profitability,” Levie said.
D.A. Davidson analyst Rishi Jaluria maintained his neutral on Box, while cutting his price target to $22 from $25 per share.
"We are incrementally positive on BOX's prospects as a standalone company following the announcement but do believe this signals that BOX as a takeout candidate is off the table for now," he said in a research note.
The analyst said he believes the investment "brings further operational discipline to Box, with the support of KKR and less executive leadership on the board."
"In our view, Box has made solid progress on margin expansion (although we do believe there is still a lot more room for cost discipline) while growth has decelerated to the high-single digits," Jaluria said.
With greater involvement from outside investors, the analyst said, "we expect that there could be a turnaround on the horizon to help Box accelerate growth.
Last month, Box shares surged following reports that the company was exploring a sale after being pressured by activist investors including Starboard Value, which took a stake in the company in 2019.
Jaluria said the investment and inclusion of KKR "provides Box with some air cover from activists (i.e. Starboard)."
He also noted that KKR's board position does come with some conditions including: KKR may not transfer any raised stock (pre or post-conversion) to an activist investor (or when doing so puts any investor at 5% ownership); and that KKR must hold 50% of the raised stock.
In early March, Box beat Wall Street's fourth-quarter estimates. Revenue climbed 8% to $198.9 million.
KKR is the biggest investor in AppLovin, a mobile application and gaming company, that announced details of its initial public offering on Wednesday.