Box, Inc. (NYSE: BOX), a renowned cloud storage company, and KKR, an international investment company, notified a contractual agreement as KKR provides $500 million worth of capital in the company as convertible preferred stock. Funds generated from KKR will allow users to work in an advance way and enhanceBOX’splan to deliver the Box Content Cloud to their customers.
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Box predicts spending the mass majority of the acquired capital to fund a share repurchase via a “Dutch auction” buying back its own common stock of up to $500 million of shares, with a particular amount and price set of the buy back to be decided in accordance to market conditions and BOX stock prices at the time when the repurchase has started.
BOX stock price fell more than 8% as “there was likely some level of M&A premium baked into the share price,” D.A. Davidson & Co analyst Rishi Jaluriastated, depicting the investors were not keen on the contractual terms for the $500M investment.
Now What
Box’s product line has soared in demand with file sharing, cloud storage and backup see an increase in usage after the pandemic and an increasing trend in remote work. Box Inc has undoubtedly profited from this trend, however, it faced a difficult time in increasing it in terms of monetary value as some similar services and products may be offered by competitors with a reduced cost or variation in price.
A self-tender for the buyback, where the price will be decided in accordance to the market at the present time, will begin as Box announces its first quarter financials in May 2021. As the funding is closed, which is expected to be concluded in May, KKR’s Head of Americas Technology Private Equity John Park is expected to join Box’s corporate board, making him the tenth member.
Conclusion
BOX shares plummeted after the company announced an agreement with KKR worth $500M, with the investors being skeptical about the terms and condition of the contract. Furthermore, BOX is in preparation for a self-tender and buy back of shares however unpredictability in future share price at the time of buyback of BOX stock has raised uncertainty among investors.
