Advocate Elliott acquires $2.5 billion investment in Texas Instruments

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Elliott, the $65 billion hedge fund renowned for its shareholder activism, has acquired a $2.5 billion investment in Texas Instruments and is recommending the company enhance its available cash flow by embracing a more flexible strategy for capital spending.

Within a 13-page correspondence assessed by reputable sources, Elliott urges Texas Instruments to implement a “dynamic capacity-management strategy” aimed at achieving a free cash flow of up to $9 per share by 2026, a figure approximately 40% higher than the current consensus among analysts tracking the leading producer of analog semiconductors.

Following the news, TI’s shares experienced a 3% surge before slightly retracting in early trading.

Elliott argues that Texas Instrument’s strict adherence to a capital expenditure plan initiated in 2022 has significantly diminished returns for shareholders by notably decreasing a key performance indicator – free cash flow.

Highlighting the drop in free cash flow from $6.40 per share in 2022 to an anticipated $1.83 per share this year, Elliott asserts that TI has deterred potential investors attracted to its dominant role in supplying analog chips to the automotive and industrial sectors. The firm contends that this decline has negatively impacted its stock value, trailing its industry peers by significant margins over the past two, four, six, and ten years.

The main focus of Elliott’s letter is the 2022 capital spending plan that required TI to elevate its capital expenditure to a peak of $5 billion annually from 2023 to 2026, elevating spending to around 23% of revenues compared to the approximately 5% of revenues allocated for capex over the prior decade.

This capital allocation would lead to expanded capacity enabling the company to nearly double its current yearly revenues to $30 billion.

However, Elliott argues that a shift in chip demand patterns since the plan’s inception will result in capacity levels “50% higher than consensus revenue projections in 2026 and 2030.”

The letter is signed by Jesse Cohn, in charge of Activism at Elliott, and senior portfolio manager Jason Genrich, who has supervised activism endeavors in Western Digital

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