Credit Beck Diefenbach/Reuters
SAN FRANCISCO â The investor pressure began building on Marc Benioff, chief executive of Salesforce.com, two weeks ago.
On Sept. 23, news broke that Mr. Benioffâs company was in discussions to buy the troubled social media company Twitter. Inside the offices of hedge funds and mutual fund companies on Wall Street and elsewhere, investors in Salesforce immediately began to question the rationale for buying Twitter. They were not happy.
The investors made their concerns known to Mr. Benioff. In emails and other communications, the shareholders told the chief executive and Salesforceâs investor relations team that they disapproved of a tie-up with Twitter.
The effort was led by Fidelity Investments, the mutual fund firm that is Salesforceâs largest shareholder, with about 14 percent of the company. At least one Fidelity portfolio manager emailed Salesforce about the deal being a bad idea, according to people briefed on the correspondence, who spoke on the condition of anonymity because the communications were private. Other Salesforce investors, including hedge funds, said they would sell the companyâs stock, according to two people with knowledge of the communications.
By this Wednesday, when Mr. Benioff spoke at an investor meeting at a San Francisco hotel, his language about any deal had turned conciliatory and defensive.
âI read all of your notes, you probably know that,â Mr. Benioff said. âI also read your emails. And as I digest all of that information, this is actually the No. 1 thing that has been on my mind. In some cases we have been unusually surprised and we have had to do a reset.â
The pushback offers a window into how big investors can exert pressure on would-be deals behind the scenes. Salesforce is particularly vulnerable to what its large institutional investors think because the unprofitable online software company relies heavily on its stock to make acquisitions and pay employee compensation. As a result, the company needs to keep investors happy for its share price to continue going up.
Salesforce declined to comment, as did a representative from Fidelity.
It is unclear whether or not Mr. Benioff will continue to pursue Twitter. One person involved in the negotiations said that, for now, Salesforceâs shareholders have halted a potential deal.
For Twitter, that would mean that its options have narrowed. The social media company had been talking to potential buyers, as well as considering divestitures and layoffs to focus its business. But companies including Google, Apple and Disney are not interested in buying Twitter, people at those companies said, and Salesforce appeared to be one of the last interested parties.
Salesforce C.E.O. on Twitter Deal
Even though Salesforce is a 17-year-old company, in some ways Mr. Benioff still runs it like a start-up, making promises of boundless growth and equity riches for all employees.
Salesforce does not have much cash on hand â just over $ 1 billion as of the end of July â compared with other tech companies, which makes it important that shareholders continue to buy its stock and enhance its value. Unlike behemoths like Microsoft, Apple and Oracle, which can turn to their multibillion-dollar cash hoards for deals, Salesforce must use a combination of stock and borrowed money to buy companies.
If shareholders were to sell and drive down the value of Salesforce stock, that would hurt Mr. Benioffâs deal-making capabilities. Salesforce needs to aggressively acquire companies to keep its revenue growing as its core business, customer-management software, slows, said Mark Moerdler, a senior research analyst at Sanford C. Bernstein.
The companyâs reliance on stock can sometimes be a negative. Earlier this year, for example, Salesforce offered a higher per share price than rivals to buy the professional social-networking site LinkedIn. Yet LinkedIn ultimately took a lower offer from Microsoft that was all in cash.
The recent investor pushback puts Mr. Benioff, who has long been a shareholder darling, in an unfamiliar position. Salesforce shares have zoomed higher since pricing at $ 11 in its initial public offering to around $ 71 now, as investors clamored to own a piece of one of the first companies to successfully convince big enterprises to rent out software that is stored in the cloud, rather than own it and run it themselves.
But after the Twitter news broke, investors pushed the stock down by as much as 8 percent over the next 10 days.
On Wednesday, during Mr. Benioffâs investor meeting where he sometimes gazed upon his own image projected on an enormous screen above the crowd, he bristled at times over the shareholder reaction.
âWell, what about this one deal right here!â Mr. Benioff said, using a shrill and mocking voice to imitate one shareholder email. âI mean the kind of things that I have been reading in the emails are so extreme I am like, Jesus, do they really think that we would do a deal at that level?â
Mr. Benioff emphasized that he is a careful deal maker who is sensitive to what any acquisition might mean for Salesforceâs shareholders, which include large, influential institutions like T. Rowe Price, BlackRock, Sands Capital Management and Harbor Funds. âI donât believe in running the company like a lone wolf,â he said, pointing to his board members who sat in the front row.
But he still left the door open, ever so slightly, for future acquisitions. âWe believe innovation happens not just in Salesforce, but in other companies,â he said.