Cognizant Technology Shakes Up Board Under Activist Pressure--2nd Update

By Imani Moise

Cognizant Technology Solutions Corp., under pressure from activist investor Elliott Management Corp., said Wednesday it would replace three members of its board.

The IT operations company also announced plans to expand its adjusted operating margins to 22% from the previous target range of 19% to 20%, and launch a new capital return program, delivering $3.4 billion in capital to investors over the next two years through dividends and share repurchases.

Shares rose 4.1% to $55.99 during afternoon trading, offsetting a 4% decline in the stock so far this year.

Cognizant's board will also form a financial policy committee to oversee completion of the plans, advised by Chief Executive Francisco D'Souza, one of the new board members, and one other adviser.

In the past, Elliott, which held a 4% stake in the company as of November, has griped that Cognizant has maintained a margin target of 19% to 20% for nearly two decades despite the company's growth. Revenue at Cognizant rose 8.6% to $13.49 billion last year from $886 million about a decade earlier. Adjusted operating margin for the year was 19.5%.

Under the terms of the agreement filed with the Securities and Exchange Commission, Elliott, also in a proxy fight for control over Arconic Inc., agreed to standstill provisions capping its stake at below 5%, preventing a hostile takeover.

Moving into the new year, Cognizant said it would accelerate its shift to digital services and solutions to meet growing demand from clients. Like other companies that have traditionally relied on outsourcing, Cognizant has been pressured by businesses' shift toward the cloud, in which software and IT services are accessed over the internet from third-party providers.

For the full fiscal year, the company expects adjusted earnings of at least $3.63 per share on $14.56 billion to $14.84 billion in revenue. Analysts polled by Thomson Reuters are expecting $3.64 per share on $14.76 billion in revenue.

Cognizant also reported fourth quarter results Wednesday, posting a profit of $416 million, or 68 cents a share, down from $424 million, or 69 cents, a year earlier. On an adjusted basis, the company earned 87 cents compared with 80 cents in the year-ago quarter. Revenue grew 7.1% to $3.46 billion.

Analysts polled by Thomson Reuters had forecast earnings of 86 cents on $3.49 billion in revenue.

Write to Imani Moise at imani.moise@wsj.com

(END) Dow Jones Newswires

February 08, 2017 13:05 ET (18:05 GMT)

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