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Source: CA Cut Deal With Fidelity For Proxy Help

Company allegedly agreed to vote on ‘poison pill’ provision within 5 years

By Mark Harrington
Staff Writer

September 1, 2001

Computer Associates International Inc., in exchange for support from Fidelity Investments Inc. in the recent proxy battle, indicated they would submit the company's "poison pill” provision against hostile takeovers to a shareholder vote within five years, an industry source with close knowledge of Fidelity's decision said Friday.

The source said that Fidelity, a Boston-based holder of 10 percent of CA shares, informed CA it has internal guidelines that prevent it from voting its shares for management if that company has a poison pill that deters "reasonably priced tender offers” or "that doesn't allow shareholders to vote on them.”

"CA management made representations they would” submit the so-called shareholder rights plan for a vote in five years, the source said.

But CA spokesman Owen Blicksilver said Friday, "There's been no commitment here of any kind regarding the pill. A majority of the board would have to vote on any such change.”

He added, "The company has said it wants to have best practices in corporate governance. What decisions the board makes on any corporate governance issue is up to the board.”

Poison pills work by effectively diluting the shares of a party deemed hostile by offering many new shares to all other holders. Such devices "can be abused and often are,” said Gary Lutin, an investment banker who ran a CA shareholders forum during the proxy fight. Lutin said institutions frown on poison pills because they restrict stock activity that could change control of a company or influence corporate conduct.

"They interfere with the exercise of shareholder property rights,” Lutin said. "Essentially they entrench management.”

In parting shots at CA management on Wednesday, Texas investor Sam Wyly charged that last-minute deal-making with large institutional holders of CA stock helped the company win a landslide victory in its proxy fight against Wyly's Ranger Governance Ltd.

But CA chairman Charles Wang, in a post-proxy interview on Wednesday, said that "not one” deal was made with institutions such as Fidelity in exchange for their support. CA won the proxy battle by a 3-1 ratio, the company reported.

A Fidelity spokesman said the company does not comment on proxy voting matters.

Sanjay Kumar, CA's president and chief executive, did seem to leave open the prospect on Wednesday that the shareholder rights plan, as the poison pill provision is officially called, could be changed. "It's a board issue,” he said then.

"The plan today stands as it is,” he noted, "and the board in the future will have to consider what it will do with the rights plan.”

Kumar's statement differed somewhat from a stance taken by Wang in a Newsday interview the week before in which he said that the plan, in place since 1991, would not be changed.

Separately, the Chicago Tribune Friday cited sources close to Wyly in reporting CA may "soon” bid farewell to two long-time directors -- co-founder Russell Artzt, an executive vice president at CA, and Willem de Vogel.

In response, Blicksilver said, "We have every reason to believe that all the directors will complete their terms.” He noted the company seeks to expand the board by two members.

Wyly lost his bid to oust four CA directors in a two-month proxy bid that ended in a landslide for CA on Wednesday.

The Tribune cited a source close to Wyly for the claim that Artzt and de Vogel would "soon” leave the board. The paper suggested those resignations led Barclays Bank, one of the larger holders of CA shares, to abandon a previous backing of Wyly. Barclays officials were not immediately available for comment.

The paper also reported "Wang promised to consider three people Barclays suggested as possible board nominees.” Blicksilver denied any such deals were made.

In the days leading up to the vote, Kumar suggested more than one CA director might move on in a continuing "evolution” of CA's board. "There are people on the current board who have said, if new people come on, that they have done their service to shareholders,” he said.

But on Wednesday, both executives denied any board member would leave during the next year.

Copyright © 2001, Newsday, Inc.


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