Is a Privatized Citrix in the Cards?

Elliott Management has a plan for Citrix. Shake out sales and marketing, sell GoTo and NetScaler, dump the dead wood, and shut down all blue-sky research. There has been no response yet from Citrix beyond a brief note to say “we’ll get back to you on that,” but you can bet that CEO Mark Templeton will not look favorably on the proposal. Regardless of how Templeton feels, with Elliott in play, Citrix has to make changes. What, then, are the choices that Citrix can make?

Putting Citrix Up for Sale

It’s always possible that Citrix could be acquired outright by one of the bigger tech companies, but which one? You can search The Virtualization Practice archives, where you will find articles by Joe Jesson and Bernd Harzog favoring a Cisco acquisition. Look further afield, and you can find articles exploring this possibility in Network World and elsewhere. I looked at the possibility of a Cisco acquisition in this 2012 article but concluded that while the technology might be a good fit, Citrix was at that that time too big to swallow. Forbes Magazine suggested that Microsoft should buy Citrix, Brian Madden wondered if  HP would be a better partner, CRN proposed IBM, and Wikibon suggested that Citrix could be at home with Microsoft, Oracle, or Cisco. Back at The Virtualization Practice, Michael Keen took a more nuanced approach, suggesting that marriage to HP was in the cards. While that didn’t happen, it’s certainly true that a merger is more likely than an acquisition.

Out of these four possible buyers, I favor Cisco. HP has other, more immediate concerns. Oracle has never understood end user computing and would do to Citrix what it has done to Sun Ray and Oracle VDI. Citrix’s very closeness to Microsoft means there’s little for MS to gain by acquisition. Cisco, on the other hand, makes just as much sense today as it has ever done, arguably more. Cisco has about $53 billion in the bank, far more than it did back in 2012. This makes it possible for it to buy Citrix outright, even at an Elliott-inflated $100 per share.

Breaking It Up

There are lots of ways you could cut Citrix up. Elliott Management has already suggested carving out NetScaler and Citrix Online as being high-value businesses in their own right. This position is echoed by BofA’s Kash Rangan. Piper Jaffray’s Katherine Egbert and Stifel’s Brad Reback both think a spinoff of Citrix’s enterprise mobility apps unit is called for. This leaves the core products XenApp and XenDesktop; XenServer; a mixed bag of tools like Podio, Grasshopper, and Concierge; and the three products that Elliott called out as underperforming: CloudBridge, CloudPlatform, and ByteMobile. XenApp and XenDesktop would obviously remain together, either in a smaller Citrix or as part of another acquisition, with the remainder scattered to the winds.

Going Private

The one thing that hasn’t been seriously discussed is the possibility that Citrix could go private, but even before Elliott got involved, it was increasingly becoming subject to unwanted attention. The recent private equity buyout of software vendor Informatica, for $5.3 billion in cash, prompted some to think that a Citrix buyout could be in the cards.

Public companies are driven by the overwhelming need to deliver against what the street expects of them every quarter. Miss your numbers, and your stock price gets hammered; underperform for too long, and activist investors like Elliott call for change at the top. This focus on the next quarter is fine if you make widgets or flip burgers, but it can be harmful to companies like Citrix, which relies on innovation to create value. It creates a short-term perspective that can be antithetical to both innovation and commitment to long-term change.

Going private is a real option, but I doubt Citrix will be able to do it on its own terms. There is no Michael Dell here who could pony up over 50% of the capital needed. Piper Jaffray’s Katherine Egbert has put a price of $92 on Citrix stock should someone want to pursue the privatization path, which would leave a potential buyer with little change from $15 billion. Of course, anybody large enough can raise the $15 billion it would require to take Citrix private, but this doesn’t let Citrix off the hook. While it would escape the tyranny of the quarter, there would still be investors to be answered to, and the same structural problems would still need to be addressed. Still, there’s hope for Citrix yet. Samuel Johnson would have it that “When a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully.” Unfortunately, Terry Pratchett knew the truth of it: “What the mind inevitably concentrates on is that, in the morning, it will be in a body that is going to be hanged.”