IBM facing investor insurrection

Once best-known for mainframe computers, IBM has been pivoting to security software and cloud services, but growth in those areas has not fully offset weakness elsewhere. Revenue in 2014 fell to $93 billion, from $107 billion in 2011.

The company, which earns more than two-thirds of its revenue outside of the United States, has been hit hard by the strong dollar and it divested some $7 billion last year. Adjusted for these two factors, revenues were down roughly 1 percent last year, the company noted. Also the company posted $21 billion in pre-tax profit from continuing operations in 2014.

IBM in said in February it is targeting $40 billion annual revenue from the cloud, big data, security and other areas by 2018. It has divested about $7 billion in commoditised IT assets, such as call centres and chip manufacturing, and announced multibillion-dollar investments in cloud data centers and its Watson supercomputer system.

Next steps

It is not unusual for investors and consultants to try and shop companies to activists. At a time when stock picking is becoming tougher, pressuring companies to buy back shares, spin off units, or replace a CEO can be appealing.

There are currently no discussions between IBM and any activist investor, two of the sources said. Still, the company's advisers are educating IBM's board on how to handle an activist and to conduct a strategic alternative analysis, they said.

Warren Buffett's Berkshire Hathaway Inc is a top investor in IBM. With Buffett often siding with management, his presence may make it less appealing for activists to jump in.

"These days no company is safe from an activist looking at it," said Damien Park, who works with large corporations as head of consulting group Hedge Fund Solutions.

"Everyone is on the list and either you already have been approached by an activist or you will be approached by an activist."

The $20 billion Pershing Square helped breathe new life into Canada's No.2 railway, Canadian Pacific, and the $15 billion ValueAct helped engineer a leadership change at Microsoft.

ValueAct sits on the board of Microsoft, which competes with IBM in some markets. ValueAct may have faced a conflict of interest if it were to take action on IBM.

Other large technology companies that have come under attack from activists in recent years include Apple and eBay, both targeted by Carl Icahn; Relational Investor LLC took aim at Hewlett-Packard; and Elliott Management Corp is pressing EMC to spin off VMware.

By Nadia Damouni and Svea Herbt-Bayliss. Additional reporting by Liana Baker and Olivia Oran in New York; Editing by Tiffany Wu and Ken Wills