May 7, 2019 / 4:51 PM / a year ago

UPDATE 1-SAP CEO welcomes 'fantastic' activist shareholder Elliott

(Adds context, further CEO comment)

May 7 (Reuters) - SAP CEO Bill McDermott on Tuesday welcomed a $1.3 billion investment by activist investor Elliott, saying the U.S. hedge fund group was aligned with his goal of expanding margins by driving top-line growth.

"They have been a fantastic investor. I am very proud they have chosen SAP," McDermott told reporters on Tuesday at Sapphire Now, SAP's annual U.S. user conference in Orlando, Florida.

Elliott, which manages $34 billion in assets, disclosed its first large European tech investment on April 24, the day SAP announced quarterly results, saying it backed a new management goal of boosting operating margins by 5 percentage points through 2023.

The purchase of a stake of 1 percent sent SAP's shares to a record high, although they have since given back some of the gains. With a market cap of about $150 billion, the German business software group is Europe's most valuable technology company.

McDermott said it would be possible to hit the margin target by ensuring that revenue growth outpaced costs, indicating that there was no pressure from Elliott for further retrenchment after a recent round of job cuts.

SAP's cost base could rise by 40 percent between now and 2023 it would still be able to hit its operating margin goal, said McDermott, who earlier gave an upbeat address to the gathering attended by 30,000 delegates.

Key to hitting the target will be raising gross margins in SAP's fast-growing cloud business, which offers business applications to clients hosted on remote servers, to 75 percent from around 64 percent now.

"I'm very confident in our top- and bottom-line development," McDermott said, adding that both he and Elliott were "psyched" by SAP's prospects. (Reporting by Douglas Busvine Editing by Edward Taylor and Jane Merriman)

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