Cloud’s shadow darkens OpenText

Stock plunges on lower guidance, cuts

Waterloo-based software company OpenText Corp.’ s plunging share price Thursday puts it in good company with competitors, who have also been challenged by the transition to cloud computing.

In a release Wednesday, the business software and information management company announced weakerthan-expected guidance for its fourth-quarter results, plans to cut five per cent of its global workforce of more than 8,000, and a management shakeup that includes the departure of a top executive.

On Th u r s d a y, investors made their displeasure known. OpenText shares that closed at $59.77 Wednesday on the Toronto Stock Exchange opened nine per cent lower at $54.78 Thursday morning. They continued to fall to $51.80 by the end of the trading day.

Gabriel Leung, an analyst with Beacon Securities Ltd., said other companies that provide similar products and services have had a challenging time shifting their business models to the cloud as well.

The old model of licensing software to help clients manage their data, documents and information in-house is becoming outdated, with more clients looking to store information in the cloud, or an off-site server they can access on multiple devices through the Internet for a recurring fee.

“If you look at the traditional, larger enterprise software guys, like SAP SE, Oracle Corp., Microsoft Corp., International Business Machines Corp. – they’ve all suffered from the same issues as well,” Leung said. “That’s why they’ve been acquiring cloudbased companies at very rich multiples. They know they have to transition the model that way.”

“We are hopeful that Canadian regulators, Canadian legislators, and indeed Canadian corporations take the views of owners very seriously,” said Wiseman, who is also on the board of the governance coalition.

“At the end of the day, shareholders own the companies in which they invest, and shareholders ought to have significant rights in determining how those corporations are governed,” he said.

The movement to give significant shareholders of public companies an easy and inexpensive way to get their views expressed on the board of directors is gaining popularity in the United States.

In February, the board of General Electric amended the company’s bylaws to allow large, long-standing shareholders to nominate candidates for up to 20 per cent of the company’s board positions.

Erlichman said he expects the CCGG’s policy is just the beginning of a process in Canada, based on early feedback, largely negative, from directors.

The Institute of Corporate Directors, for example, says Canadians should be wary about importing a “fad” from other jurisdictions when this country already has mechanisms in place that allow entire boards to be replaced by activists and groups of shareholders.

What’s more, opponents say such policies will enable shortterm investors to influence companies in ways that aren’t in their long-term interests, and create a more adversarial climate.

“This is good for companies, but I don’t think this is the way it’s being perceived,” the CCGG’s Erlichman said in an interview. “Not everything has to be: If the shareholders win, the director loses.”

He noted that institutional investors behind the coalition are pushing for this, and said their motivation is very different from that of activist investors who seek to replace boards outright with a slate of directors brought in to pursue a narrow agenda.

“We haven’t created this policy for activists,” he said.

The coalition’s policy recommends shareholders with an aggregate economic and voting interest of at least three per cent of outstanding voting shares nominate the lesser of three directors or 20 per cent of the board. For companies with a market capitalization of less than $1 billion, the share ownership threshold would rise to five per cent.

Disclosure about the shareholder’s nominees should appear in the company’s proxy circular “in the same section” and “with the same prominence” as disclosure about the company’s selected nominees.

The coalition’s policy doesn’t specify an amount of time the shares must be held — some of the U.S. policies require three years of ownership — but the shares must be held at the time of the meeting where directors are elected.

Anita Anand, a professor at the University of Toronto’s faculty of law, said if even one Canadian company embraces proxy access for its large shareholders, it could have a domino effect.

“We may indeed see a Canadian GE which would in turn place director pressure on public companies in this country to follow suit,” she said.