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CA faces proxy fight
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June 21, 2001: 2:59 p.m. ET
Investor group seeks to control Computer Associates, break up company
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NEW YORK (CNNfn) - Computer Associates International prepared Thursday to fend off a proxy fight by a Dallas-based investment firm to take control of the software maker.
Ranger Governance Ltd., led by billionaire Sam Wyly, initiated a proxy solicitation of Computer Associates stockholders. The investor group plans to nominate a slate of replacements to Computer Associates' board; it also is pitching a restructuring plan that would split the company into four divisions – storage management, security management, systems management and knowledge management – that could later be spun off.
Sam Wyly, who sold his company Sterling Software to Computer Associates for about $4 billion stock last year, agreed to serve as Computer Associates chairman if his slate is adopted at the annual meeting on Aug. 29.
"By any performance measure – stock price, financial growth or customer satisfaction – Computer Associates has clearly under-performed against its peer companies," Wyly, through Ranger Governance, said in a statement. "With a pervasive culture of fear and intimidation, the Company has abused and alienated customers, employees and shareholders alike."
Shares for Computer Associates (CA: down $0.11 to $33.69, Research, Estimates) have plummeted nearly 39 percent from its 52-week high of $54.50. However, news of the proxy fight had little impact on shares Thursday, which dropped marginally.
Islandia, N.Y.-Computer Associates, the world's No. 3 independent software company behind Oracle and Microsoft, said Thursday it was confident it would have the support of its principal shareholders. In fact, Wyly recently pitched his proxy fight to Computer Associates largest shareholder, Walter Haefner, and Haefner reaffirmed his confidence in the current management team of CA, the company said.
"The strategy that we have in place, including the product focus areas and the new business model, will yield substantial dividends for our shareholders, customers, and employees," the company said in a statement.
Falling from grace
Computer Associates, founded by billionaire Charles Wang in 1976, has suffered along with most technology firms in the current economic downturn. Last month, Computer Associates reported a fiscal fourth-quarter net loss of $410 million on revenue that fell more than 61 percent from the same quarter a year ago.
The software maker sells a broad range of enterprise systems management, storage management, and database software to corporate customers.
Computer Associates' financial reporting practices have also fallen under scrutiny recently after it changed them last October to reflect a new software licensing model.
However, there has been no investigation and press reports examining CA's accounting practices actually rehashed problems that occurred at the company years ago, said analyst Andrew Brousseau, of SG Cowen Securities Inc.
"CA changed their licensing and recognition policy for the better," Brousseau said. "A change in accounting reflects a change in licensing. They were not cited for accounting problems."
The proxy fight is really a thinly veiled attempt to gain control of the company at a cheap price, he said. Wyly's plans to reorganize Computer Associates into four business units focused on storage, security, systems and knowledge management.
"The company has already outlined its strategy to focus on those areas," Brousseau said.
If the investor group were really serious about taking over CA they would have made a monetary bid for the company, he said. Even with Wang, who is now chairman, no longer controlling the day-to-day operations of Computer Associates, the company will end up fending off the Wyly bid.
"If [the investor group] wanted to do something compelling they would come out with a dollar figure," Brousseau said. "But other than saying I'm a better guy than he is, there is nothing new here."
The Wyly-led bid will likely shake things up at Computer Associates, added analyst John McPeake of Prudential Securities Inc.
"This is more likely to get some traction than other tech companies because of [CA's] stock performance," he said. "But they're not going to win outright." 
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