Computer Associates International, Inc.
A new “Forum” program for shareholders of Computer Associates
International, Inc. (“CA”) is being initiated in 2004 to address essentially
the same issue that concerned participants in the 2001 CA Forum: eliminating
a substantial stock price discount associated with corporate governance
conditions. The current Forum’s objective is to support effective
shareholder oversight of the actions required to achieve that value
enhancement within a year.
Conditions Impairing Value
The marketplace pricing of CA stock at the end of October 2004
was discounted more than 30% below the $40+ price range that would be
realizable if CA were valued at the average ratios for its industry.
Most or all of this discount may be attributable to the following risk
Corporate integrity – After years of public controversies about
compensation and accounting issues, the Department of Justice and SEC
brought criminal fraud and obstruction charges against seven top executives,
including the CEO, and imposed a Deferred Prosecution Agreement on the
company requiring corporate reforms within 18 months.
Financial reporting – Although the company’s auditors and regulatory
agencies are satisfied that fraudulent financial statements have been
corrected, professional securities analysts continue to find the current
form of company reports difficult to understand.
Executive leadership – Most of the top level of executives were
dismissed or resigned in relation to the corruption investigations, and the
company is currently operating without a permanent CEO or CFO.
Shareholders must of course rely upon the company’s board of
directors to establish at least acceptable standards and average values,
either (a) by developing a new management team that can make the required
changes or (b) by selling the business to a company with existing management
resources to assure viable operations. Forum attention will therefore be
focused on the information needed by shareholders to responsibly select and
monitor the directors. Subjects of review are expected to include
past performance of each incumbent director standing for
re-election in 2005;
shareholder nominations of director candidates;
qualifications of all candidates for election to the board;
qualifications of the company’s auditor; and
against directors for unjustified compensation or the costs incurred by the
company for shareholder claims and the September 2004 Deferred Prosecution
To address these and other issues that may be defined, the Forum
will conduct a variety of activities to provide investors with the kind of
access to information and free exchange of views that might be sought at a
traditional shareholders meeting, but with independent control of the
process and continuous operation until shareholder interests are resolved.
CA’s management will be invited to support the Forum, and it is hoped that
the responses of the company’s directors and representatives will permit
cooperative communication for the benefit of all decision-makers. However,
even in the absence of management participation beyond obligatory responses
to shareholder requests, the Forum may conduct board inquiries, panel
reviews, professional workshops, shareholder surveys, open meetings or other
activities as required to produce the information investors need for their
evaluations and decisions, and also to present management with information
they need to consider in the performance of their duties to shareholders.
Participation in the Forum will be open to all CA shareholders
and any professionals concerned with their decisions, without charge,
according to standard Forum conditions.
Investors with sufficient interests in CA will be encouraged to consider
additional participation in advisory panels to help define the issues
addressed by the Forum. All participants are expected to make independent
use of information obtained through the Forum, and Forum participation will
be considered private unless the party specifically authorizes
The Forum will be managed by Gary Lutin, the investment banker
who conducted the 2001 CA Forum as well as the forum programs to resolve
investor interests in public demonstration cases regarding Amazon.com,
Chesapeake-Shorewood Packaging, Crowley Maritime, Dun & Bradstreet, Farmer
Bros., Lone Star Steakhouse, National Presto, and Willamette Industries.
Professionals with relevant expertise may be engaged for services or advice
as required to support the evolving information needs of Forum participants.
November 1, 2004