Activist investor Engine Capital is pressing EPAM Systems to take decisive action to address a sharp decline in its share price, calling on the IT services company to pursue an aggressive stock buyback or consider putting itself up for sale, according to a report by Bloomberg.
Engine, which holds a 1.5% position in EPAM, has told the company’s board that the stock’s more than 40% decline this year has created an opportunity for management to deploy capital to support the share price or investigate whether a strategic buyer could unlock greater value for investors.
The Newtown, Pennsylvania-based company has a market capitalisation of around $6.1bn. Its shares rose about 3.5% on Monday following the disclosure of Engine’s campaign.
In a letter to the board, Engine managing member Arnaud Ajdler argued that EPAM’s underperformance relative to both peers and the wider IT services sector has left the company looking increasingly like a “relative loser” in the public markets.
Engine is proposing that EPAM make significantly greater use of its balance sheet, including its approximately $750m cash position, future free cash flow and additional borrowing capacity, to fund share repurchases.
According to the activist, such a strategy could potentially allow EPAM to buy back between 60% and 80% of its outstanding shares by the end of 2028.
The hedge fund is also seeking changes to EPAM’s governance, including the appointment of additional independent directors and the establishment of a dedicated capital allocation committee.
Engine’s preferred route is for EPAM to accelerate its buyback programme and demonstrate that the strategy can improve shareholder returns. However, if the company declines to do so, or repurchases fail to reverse its performance, Engine wants EPAM to undertake a formal strategic review.
That process, it said, should be overseen by independent directors and supported by an external financial adviser, with a potential sale of the company among the options considered.
EPAM’s shares have been hit alongside other technology and software companies by investor concerns that artificial intelligence could disrupt established business models and reduce demand for traditional IT services. Engine argues, however, that EPAM’s performance has been particularly weak compared with its peers.
