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Forum Report: Finding the path to $50 per share (and beyond?)

(August 1, 2001)

From: Gary Lutin
Sent: Thursday, August 02, 2001 12:22 AM
Subject: Finding the path to $50 per share (and beyond?)

 
The article copied below suggests that the vigor of the controversies has endured beyond the audience's focus.  Everyone seems to have lost sight of what the contest is and should be about: shareholder value, a/k/a the money.
 
You have an opportunity -- perhaps a duty -- to decide which slate of candidates is most likely to deliver CA's potential value to shareholders.  In this context, the substance beneath the spin and squabbling points is often important, and we need to make use of it.  If it applies to the two essential questions suggested on Monday, it's relevant:
  1. What is the maximum shareholder value that can be generated by the candidates' proposed business strategy?
  2. Can the candidates be relied upon to deliver the potential value to shareholders?
It's time to put a dollar amount on what each side promises, and then to evaluate the probability of their delivering it to the shareholders.  Let's decide what you need to know from the candidates to do your analysis.
 
If you tell me what you want, I'll try to work it into the requests being drafted for submission to the candidates.  Target date for completion is Monday, so try to let me know your interests by Friday.
 
                GL - 8/1/01 
 

 
 
Wednesday August 1, 7:06 pm Eastern Time

Computer Assoc. bidder woos Wall St., gets yawns

By Ilaina Jonas

NEW YORK, Aug 1 (Reuters) - Texas billionaire Sam Wyly, waging war to wrest control of the world's No. 4 software maker, tried to convince Wall Street on Wednesday that his plan to break Computer Associates International Inc.(NYSE: CA) into four parts would get profits flowing by freeing talented employees from an oppressive management.

But Wall Street yawned.

``We believe there were no new issues raised during this conference call,'' Andrew Brosseau, SG Cowen analyst wrote in a research note.

Wyly and two members of his Ranger Governance Ltd. takeover group detailed their plans for Computer Associates should they win their proxy fight to control the company.

``We continue to believe that Ranger will be unsuccessful in its bid for CA, and as proxy deadline draws near, expect Wyly to become less and less of a factor,'' Brosseau wrote.

``The devil is in the details and it's hard to understand how a hostile takeover of Computer Associates has the potential to garner the support of CA employees an senior executives,'' Credit Suisse First Boston analyst Wendell Laidley said.

Wyly has asked shareholders to vote on Aug. 29 for a slate of 10 board candidates he proposed instead of the present board. Wyly is seeking to have the new board, of which he would be a member and most probably its chairman, to oust Chairman Charles Wang and Chief Executive and President Sanjay Kumar.

``The appointments of a 10-member board in a hostile context is hardly the magical elixir that will solve CA's challenges in a manner that is incrementally better than what CA is doing today,'' Laidley said. ``I've heard zero discussion of who the proposed operational executives would be -- i.e. who's going to run sales, who's going to run marketing.''

FOUR PARTS GREATER THAN THE WHOLE?

The Ranger group proposes to break the company, maker of nearly 1,200 software products, into four groups -- storage management, security management, network management and knowledge management. Each group would have its own chief executive. Wyly has outlined this plan before.

The knowledge management unit would oversee existing database application development, information retrieval and other products as well has house Computer Associates own company wide corporate functions such as finance and legal.

Ranger intends create development teams and reward them with royalties for the new products they create.

``This is not a breakup strategy, its a break out strategy to liberate smart folks to achieve growth,'' George Ellis, a former chief financial officer of Sterling Software and Ranger team member, said.

Additionally, the Ranger group intends on creating a ``elite national account organization,'' for large clients. The elite sales force would would with four separate business units.

``We think it's just the most natural arrangement in the world,'' Stephen Perkins, proposed board member and co-founder of Sterling Commerce told Reuters. ``And it's the one that's going to allow the customers to enjoy a much better relationship with CA.''

A study Islandia, New York-based Computer Associates commissioned itself, showed that a majority of those corporate chief information officers surveyed do not think CA representative understand their business.

But Goldman Sachs analyst Peter Goldmacher said he didn't believe Ranger's plan was the answer to CA's problems.

``There is no panacea to cure what currently ails CA, only time, hard work and execution,'' he said. ``The fact that the company generates roughly half its revenues from the slow growing mainframe market will not change with a new execution strategy. These kinds of transitions just take time.''

Last year when firms such as Computer Associates, BMC Software Inc.(NYSE:BMC) and Compuware (NasdaqNM:CPWR) were battered by a fall off in mainframe software sales, each has tried to tear itself away from a dependence on those sales. Instead they have focused on beefing up their sales of software made for networked computer systems.

Goldmacher said each growing software company reaches a point where the breadth of its product offerings exceeds the capabilities of one single sales person to accurately represent them all.

``While breaking up the company into four separate operating units to better represent unique product families could work, it is by no means a sure thing,'' he said. ``One must consider the risk associated with fragmenting what could be considered a comprehensive CA solution encompassing all four divisions.''

Instead Goldmacher pointed to BMC's new sales strategy of having one representative selling the BMC ``vision,'' and coordinating the appropriate product family specialists to address the opportunity, by product family, in each sales situation.

Laidley said that breaking the company apart wouldn't make it better focused or more accountable, just more costly to operate.

``Instead of achieving economies of scale inherit in a larger organization, and amortizing the infrastructure cost across the different product areas, under the Wyly plan it would appear each bushiness unit is forced to replicate the infrastructure creating a higher fixed cost within each business unit,'' he said.


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