Associates Pays Wyly
To End Proxy Fight for 5 Years
Company Insists $10 Million Payment
Doesn't Amount to Corporate Greenmail
By JERRY GUIDERA
Staff Reporter of THE WALL STREET JOURNAL
Dissident investor Sam Wyly accepted a $10 million
payment from Computer Associates International Inc. to abandon
his proxy battle with the big software maker, raising questions from
corporate-governance reformers whose ideas he championed.
Mr. Wyly, who had advocated board independence and
railed against big payments to executives as he fought to unseat members
of the Computer Associates board, also pledged not to launch any
takeover battles or proxy fights for five years.
As part of the deal, Computer Associates, whose stock
has been suffering amid a string of losses and a federal investigation
of its accounting, also agreed to add an independent director to its
11-member board shortly after the company's annual meeting Aug. 28. Mr.
Wyly will have no say over the new nominee but took credit for the
company's pledge to add another board member.
The company said the deal benefited shareholders by
avoiding a management distraction, and saved the company the cost of
fighting Mr. Wyly. But shareholder advisers blasted both sides for
reaching a closed-door deal and likened the payment to stock awards
popularized by takeover targets in the 1980s to ward off takeover
"It's a strange thing to prove your commitment to
corporate governance by paying greenmail to a noisy investor," said Pat
McGurn, of Institutional Shareholder Services, a proxy advisory firm
that backed Mr. Wyly's prior proxy effort last summer. "This says as
much about CA as it does about Sam Wyly. I would rather have had the $10
million paid out as a dividend to shareholders."
"This payoff raises deep concerns about behavioral
governance problems at Computer Associates," said Ted White, director of
corporate governance for the California Public Employees' Retirement
System, or Calpers, which owns 5.76 million CA shares. He called the
payment "offensive" to shareholders.
The $10 million payment, in addition to obtaining the
no-fight pledge, extends for two years an existing noncompete agreement
Mr. Wyly signed when he sold a company he managed, Sterling Software
Inc., to Computer Associates for about $3.9 billion in March 2000. As
part of the Sterling sale, Mr. Wyly had signed the five-year pledge in
exchange for nearly $16 million, according to regulatory filings, 25% of
which was slated to cover Mr. Wyly's noncompete pact.
Mr. Wyly's slate of four board nominees lost by a
margin of more than three to one last year and his latest five-nominee
slate was facing an uphill battle. He "clearly had no way to win this
fight," said Heather O'Loughin, an analyst for State Street Global
Advisors, which owns 2.2% of Computer Associates shares. "It's a modest
way for Sam Wyly to declare victory and close the book on this chapter."
The agreement came early Wednesday after days of
negotiations between Mr. Wyly and Computer Associates Chief Executive
Sanjay Kumar, according to Stephen Perkins, president of Ranger
Governance Ltd., an arm of Mr. Wyly's Dallas-based hedge fund.
Both Computer Associates and Mr. Perkins rejected the
assertions of corporate-governance advocates. "I don't care what they
conclude," said Mr. Perkins, "I'm very confident that we advanced the
ball on corporate-governance issues and that this is good for CA holders
and good for Ranger." Said Charlie Holleran, a spokesman for Computer
Associates, "This is not greenmail."
Write to Jerry Guidera at
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Updated July 25, 2002