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Cognizant Reaches Agreement With Elliott Management

February 8, 2017

Cognizant Technology Solutions has entered into a cooperation agreement with Elliott Management. Pursuant to the terms of the cooperation agreement, the Cognizant Board of Directors has agreed to continue the ongoing process of refreshing the Board by appointing three new independent directors, two of which will be named prior to the mailing of the Company's definitive proxy statement for the 2017 Annual Meeting of Stockholders and one of which will be named in connection with the 2018 Annual Meeting of Stockholders. Three existing members of the Board will concurrently not stand for reelection.

Plan to Accelerate Shift to Digital Services and Solutions and Enhance Shareholder Value

Today the Company announced a comprehensive plan to accelerate the shift to digital services and solutions, execute on operational opportunities to drive leverage in its cost structure and return significant capital to shareholders. Faced with business and technology shifts disrupting their industries, clients are both accelerating their adoption of digital services and solutions and, at the same time, optimizing their core systems and processes. This plan will allow the Company to leverage its position as a leader in the services sector and accelerate its shift to be a leading provider of digital services and solutions. The elements of this plan will drive a shift in the Company's operating model and include the following:

  • Accelerating Investments to Build Digital Capabilities: To stay relevant to evolving client demand, the Company will aggressively scale its digital capabilities across geographies and industry segments through both organic investments, in areas such as re-skilling and new technology practices, and through acquisitions. The Company is intensifying its M&A efforts to expand intellectual property, industry expertise, and platform and technology capabilities, by focusing primarily on strategic tuck-in acquisitions.
  • Improving Non-GAAP Operating Margins to Protect Investment: As a result of the Company's strategic planning process and after reviewing its operational and corporate cost structures with a top-tier consulting firm, the Company will accelerate the pursuit of high-value digital transformation work, drive leverage in its cost structure, execute on opportunities to improve operational efficiency and aggressively employ automation to optimize traditional services. The Company believes that these actions are necessary in order to preserve the ability to invest for growth while enhancing shareholder value. The Company's plan is to expand its non-GAAP operating margins as it continues to invest and scale its operations, with a non-GAAP operating margin target of 22% in 2019.
  • Returning Capital to Shareholders: The Board has approved a plan to return $3.4 billion to shareholders over the next two years through a combination of share repurchases and dividends. As part of this plan, the Company expects to commence a $1.5 billion accelerated share repurchase program (ASR) in the first quarter of 2017, initiate a regular quarterly cash dividend of $0.15 per share commencing in the second quarter of 2017, and repurchase shares of $1.2 billion in the open market during 2017 and 2018. Beginning in 2019, the Company plans to return approximately 75% of its U.S. free cash flow3 on an ongoing basis to shareholders through a combination of dividends and share repurchases. The capital return plan will be funded by current U.S. cash balances, future cash flows from U.S. operations and incremental debt financing and is designed to preserve the Company's financial flexibility to invest in future growth opportunities. The Board of Directors intends to continue to review the capital return plan for potential future increases, including the quarterly dividend, subject to Company financial performance, economic outlook and any other relevant considerations.

"We are pleased to announce a comprehensive program that will enhance total shareholder return for Cognizant," said Karen McLoughlin, Chief Financial Officer. "Today's actions reflect the Board's confidence in the Company's long-term strategy, which will drive sustainable revenue and earnings growth and greatly accelerate capital return, while ensuring that Cognizant maintains the ability to invest in the business and financial strength and flexibility."

Francisco D'Souza, Cognizant's Chief Executive Officer said, "We are pleased to be working with Elliott and look forward to welcoming new colleagues to the Board. In addition, as part of today's full-year earnings release, we announced a plan to accelerate our shift to digital, expand margin targets and launch a robust new capital return program. Taken together, these initiatives will make Cognizant even stronger. I am confident that we are well-positioned to drive long-term shareholder value as we continue investing in exciting new areas of growth for Cognizant and our clients around the world."

Jesse Cohn, Senior Portfolio Manager at Elliott Management added, "Frank and his team have been terrific partners in this process and have developed a thoughtful, balanced and highly attractive plan. In an evolving industry, Cognizant must continue to invest for growth and the digital transition, while further optimizing operations and returning capital to its shareholders. We are large shareholders of Cognizant because we believe the Company has a strong position in the industry and can deliver compelling value to shareholders."

Cognizant's Board will also form a Financial Policy Committee, which will assist and advise the Board on issues relating to Cognizant's operating plan and capital allocation policy. The Financial Policy Committee will be comprised of three directors, including Mr. D'Souza, an incumbent director with previous operational experience and one of the new directors.

Pursuant to the cooperation agreement, Elliott has also agreed to certain customary standstill provisions, as well as to support the integrated plan announced today. The full cooperation agreement with Elliott will be filed in a Current Report on Form 8-K with the Securities and Exchange Commission.

Centerview Partners LLC and Morgan Stanley & Co. LLC are serving as financial advisors to Cognizant, and Goodwin Procter LLP and Latham & Watkins LLP are serving as legal counsel.

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