Retreat, Not Surrender
Wyly backs off from CA fight, but still
seeks to oust Wang
By Mark Harrington
August 17, 2001
Sam Wyly blinked.
The Texas tycoon who proposed installing himself as chairman of Computer
Associates International yesterday removed himself from the proxy fight
and reduced the board seats sought by his Ranger Governance Ltd. from 10
seats to four.
Now, even if Wyly's reduced slate were to win, it would mean his plan to
divide CA into four companies would become little more than a proposal to
a CA board on which his supporters are a minority.
Observers say the strategy allows Wyly to give institutional shareholders
who may not have supported a complete takeover a viable mechanism for
change that doesn't "decapitate management,” in the words of one source.
"That's a good move.”
"Half a loaf is better than no loaf,” Wyly said in an interview yesterday.
"After getting a lot of feedback from institutions and leadership in the
governance community, we saw this as the best way to win.”
And the strategy isn't without a trace of characteristic Wyly moxy. His
candidates will now face off four-on-four against some pretty influential
people at CA, including company co-founders Charles Wang and Russell Artzt,
key board supporter Willem DeVogel and former Sen. Alfonse D'Amato.
Wyly decided not to challenge CA's current chief executive, Sanjay Kumar.
But if Wang, the current chairman, loses his seat, the board would have to
elect a replacement from among its members.
"I'm no longer an issue,” Wyly noted, echoing concerns of some governance
experts that his presence on the proposed board made him a "lightning rod”
of mixed attention.
While CA sniffed at the latest wrinkle in the summer-long proxy contest as
a "last-ditch, desperate” attempt to salvage Ranger's plan, there were
early indications that it could garner influential support.
Significantly, the California Public Employees' Retirement System, an
influential corporate governance group representing the retirement
holdings of California state employees, yesterday declared its support for
Ranger's dissident board members in a recommendation that's closely
watched by large institutions. In the endorsement, CalPERS said it
believes "the partial dissident slate will energize the company by its
emphasis on improved customer relations, growth through acquisitions and
innovation, increased transparency, and enhanced corporate governance
Institutional Shareholder Services, the influential Rockville, Md.-based
adviser to many large holders of CA shares, yesterday said it would issue
a new alert about the change as early as today, and it is largely expected
to come out in support of Ranger's shorter slate. That's because ISS was
the firm that first broached the idea, at least publicly, in a report to
its hundreds of clients last week.
The report slammed CA for "deplorable” corporate governance, particularly
for its "overcompensation” of executives, and said Ranger would have won
its endorsement if it had proposed a shorter slate.
"Clearly, we're looking at this new development,” said ISS vice president
Pat McGurn, adding the firm stands by its public statement of support for
a short slate. But he emphasized ISS hadn't finalized a decision.
Others expect ISS to support Ranger.
"It would be pretty awkward for ISS not to endorse Ranger after what they
said in the report,” said Gary Lutin, an investment banker leading an
independent shareholders forum on the CA proxy fight.
Separately, a source said at least two "very large” institutional holders
of CA shares would vote in support of Ranger as a result of the altered
slate, but declined to name them.
Whether any new support is enough to put Ranger's reduced team onto the CA
board is another matter. It was an issue up for debate yesterday.
"The new four-candidate slate shifts the odds in favor of the dissidents,
with or without Walter Haefner's 21 percent of the vote,” Lutin said. "Haefner's
support for a practical mix of old and new board members would be
consistent with both his loyalty to existing management and his fiduciary
duties to public shareholders.”
Haefner is CA's largest shareholder, with 21 percent of its shares.
Ranger's remaining slate will consist of Stephen Perkins, Cece Smith,
Richard Agnich and Elizabeth VanStory, the group said yesterday.
One source close to institutional investors called Wyly's move "a good
choice of dumping the lightning rods and sticking with people who really
bring something to the table.”
Ranger's decision not to target Kumar's board seat "gets back to the issue
of not decapitating management,” the source said.
Reports by ISS and Proxy Monitor, a similar firm, that endorsed CA also
took sharp aim at Wyly's past governance transgressions, including an SEC
investigation and concerns about the management of his hobbyist supply
chain, Michael's Stores.
Although Wyly ran on the platform of having gotten governance religion
from those past transgressions, the research firms were unable to look
beyond them. Wyly said that was a major reason he decided to withdraw his
A CalPERS spokesman, Brad Pacheco, explained the group probably wasn't
prepared to vote the full Ranger slate. "It was too radical a change,” he
said. "This is more palatable to CA and CalPERS.”
For a group that once criticized the governance practices of Ranger
manager Wyly, the endorsement by CalPERS is considered extremely
CA found the endorsement ironic. "It's surprising the people who
criticized Wyly so soundly in the past would now support a slate he's
compensating,” CA spokesman Owen Blicksilver said.
CalPERS, which holds about 3,117,040 shares of CA stock, is widely
believed to have influenced Ranger's decision to reduce its board slate.
On the broader issue of Wyly's withdrawal and Ranger's new plan, CA took
"Clearly, Mr. Wyly has decided to drop out because he recognizes his
misguided plan for CA and his corporate governance history has made him
unelectable,” the company said in a prepared statement. "Instead, he has
tried a last-ditch, desperate tactic that simply prolongs this battle.
"We think it's a face-saving move but demonstrates his word is
CA called it "most ironic” that Wyly is no longer challenging Kumar's
board seat after making him "the target of his early criticisms ... We
think shareholders will not be any more receptive to Mr. Wyly's new
approach than when he was Ranger's front man.”
Wyly said he doesn't believe the minority position on the board implies a
weakness for his slate.
"Our four directors will go in with the view that they will diligently
implement the goals Ranger has laid out,” he said.
Wyly noted that Smith's strengths in accounting make her a candidate for
CA's audit committee; that Agnich could head CA's compensation committee
to root out perceived abuses there; that VanStory is expert in employee
issues and would be interested in creating an "employee care committee;”
and that Perkins' strengths in customer relations and business
organization will serve in helping develop a new CA business plan.
Asked how Ranger decided on the slate of directors it hopes to oust, Wyly
said Wang and Artzt were "easy” to explain. "Wang and Artzt got most of
the billion dollars” in compensation in 1998 for what he called
"nonperformance,” a factor cited critically by both ISS and Proxy Monitor
in their reports. (Actually, Kumar received the second-largest amount, and
the $1.1 billion was reduced by a Delaware court ordering return of 4.5
DeVogel was chosen because he's "been there 20 years and is part of the
bad culture.” D'Amato is a member of CA's compensation committee.
Wyly suggested Wang "can focus on the sports team,” referring to his
ownership of the New York Islanders hockey team.
Ranger's decision isn't without its hurdles. For one, CA is likely to
contest the change because it's such a divergence from Wyly's initial plan
that sought all 10 board seats, said Jason Montgomery, a senior analyst at
corporate governance service, Investor Responsibility Research Center, in
There's also the question of the technical changes in Ranger's definitive
proxy. It must communicate the change to all voters. Ranger has said it
will prepare a three-page document to supplement its proxy materials, and
send new green proxy cards to shareholders with the short slate. Only
shareholders' latest cards are counted.
The SEC said Wyly shouldn't have a problem.
"There's no specific time window as far as changes go, but they must leave
adequate time and provide adequate disclosure for the purposes of voting
the proxy," SEC spokesman John Heine said.
Blicksiver said he doesn't expect the Ranger change to postpone the annual
meeting, scheduled for Aug. 29, but he declined to discuss CA strategy in
response to the change, including whether the company would file suit to
Perhaps of more concern to Ranger could be credibility issues resulting
from such a drastic change that came so late in the process, Montgomery
"Wyly had said he was all-or-nothing, and now he's on the stand with the
jury about to vote and he shifts course,” he said. "There's a hole in his
credibility because he shifted from his commitment. I think a lot of
people are scratching their heads.”
At the same time, Montgomery read Wyly's removal of himself from the race
as a sign of something else.
"The only logical conclusion from all this is that he's very, very serious
about effecting change at Computer Associates,” he said. "I think he
really wants to be seen as a [pro-corporate governance] type of fellow.”
Wyly said if Ranger wins the election, it won't endorse that chief
executive Sanjay Kumar take the role of chairman, although he said he's
putting Kumar on notice.
"We'll give him another year to perform,” Wyly said of Kumar.
Nor did he seem entirely broken up about his backing away from his
proposed role of CA chairman.
From a logistics standpoint, "That means, as my wife said, that she can
stop looking for a house on Long Island.”
Wyly said he could not make a judgment about whether Haefner would change
his support of management based on the shorter slate. "I've had no
conversations with Haefner,” he said. "I could in no way speak for him.”
Beyond the CA fight, Wyly said he'll "continue to be interested in good
governance. This is much bigger than CA,” he said. "We've said that from
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