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Wyly lawsuit wins little support from CA investors
Friday July 2, 9:48 am ET
By Wei Gu


NEW YORK, July 2 (Reuters) - Texas billionaire Sam Wyly's latest battle against management of software maker Computer Associates is getting little support from investors who question his motives and credibility.

Wyly's Ranger Governance Ltd. has sued 10 former and two current Computer Associates executives on behalf of the company and its shareholders, seeking to recoup more than $1 billion in bonuses that plaintiffs claim was based on erroneous financial reporting.

"Some people think that Wyly is just motivated by vengeance, this is another opportunity for him to grab another quick $10 million," said Gary Lutin, an investment banker who represents shareholder interests and works on corporate control controversies.

Wyly became a major shareholder of the Long Island, New York-based company after he sold Sterling Software Inc. to CA in 2000. In the following two years, Wyly launched two expensive proxy fights, seeking to replace certain board members.

Two years ago Wyly walked away with $10 million from CA in exchange for refraining from launching any proxy fights against the company for five years.

"Most shareholders would not consider Wyly as an appropriate representative of their interests," said Lutin, who is not a CA shareholder but has led a CA shareholder forum sponsored by Wyly.

"In the past he has represented only Wyly's interests," he added.

Wyly's attorney, William Brewer, dismissed those comments as "silly," adding that any damages be recovered from the suit will go to Computer Associates. Ranger will be reimbursed for the litigation costs. A lawsuit like this could take 15 months to two years.

When asked if Ranger or Wyly would accept a settlement and drop the suit, Brewer said, "Absolutely not."

An institutional shareholder, who spoke on condition of anonymity, said, "The lawsuit is an annoyance. It is going to cause management to divert attention to that instead of running the business."

CA is facing a long-running criminal investigation into its past accounting, which resulted in the departure of 15 executives including former Chief Executive Officer Sanjay Kumar. Four former executives, including its former chief financial officer, pleaded guilty to charges including securities fraud and obstruction of justice.

The software maker, which said its board is still reviewing past compensation issues, told Brewer that Wyly and his group have breached their obligations under the 2002 agreement, which has been kept confidential. Brewer disagrees, saying that the agreement forbids Ranger from launching proxy fights, not lawsuits.

Brewer stressed that Wyly is not trying to "greenmail" the company, noting the $10 million paid by CA in 2002 was a small fraction of the cost of the proxy fight undertaken.

Greenmail refers to payments by a target company to a bidder, usually to buy back acquired shares at a premium to the market price in order to dissuade the takeover effort.

It remains to be seen whether Ranger's suit will trigger more shareholder lawsuits. Computer Associates last August agreed to pay about $144 million to settle all outstanding litigation related to claims about its past accounting problems.

"I am surprised to see that whole lawsuit business come back again," said Nitsan Hargil, an analyst with Friedman Billings Ramsey.

Ranger's suit also named Computer Associates as a nominal defendant, as the company did not bring the suit itself.

Other shareholders have also asked CA to urge some executives to pay back the bonuses awarded for periods when revenues were booked early.

For example, Amalgamated Bank's LongView Fund, which launches two dozen shareholders' proposals a year on various governance issues, has proposed to the CA board to recoup the bonuses paid on earnings that were restated.

"The dialogue is ongoing," said Con Hitchcock, an attorney for LongView. "We will keep talking. Either we will reach an agreement or you will see our proposal in CA's proxy agreement at the end of July."

Shares of Computer Associates were off 9 cents at $27.58 in early trade on the New York Stock Exchange.



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