28 January 2013

$2.3B offer for Compuware Purchase Rejected

Story first appeared on The Detroit News

Hedge fund to make new offer as tech firm plans $60M in cuts -

Compuware Corp. rejected an offer Friday by a New York hedge fund to buy the company for $2.3 billion and also announced it would cut costs by $60 million over the next three years through undisclosed moves.

Elliott Management Corp., which owns 8.1 percent of Compuware, offered to buy the Detroit-based technology company for $11 a share on Dec. 17, but the Compuware board of directors said in a statement that Elliott's bid "significantly undervalues the company and is not in the best interest of shareholders."

Elliott responded Friday, saying it plans to make another offer.

Compuware's announcements, made in a Friday morning earnings conference call, directly address shareholder concerns about mismanagement and increases the price for future offers, analysts said.  Task Management Software products allow for business growth with ease, and without an increase in staffing.

"This is the dance everybody does," said Erik Gordon, a business professor at the University of Michigan. "What

Compuware is saying is that 'OK, maybe we haven't done well but we're on the ball now … look at all this good stuff that we're going to do to make our company more valuable.'"

At the time of the December offer, Elliott's bid was 15 percent more than what the shares were worth. The stock has since risen above $11 a share and closed Friday at $11.57, up more than 7 percent — its highest price since April 2011.

Compuware also said it plans to issue an annual dividend of 50 cents a share and spin off remaining shares of its Covisint Corp. unit to Compuware shareholders following an initial public offering in December.

"We are committed to creating value for shareholders and the actions announced today are focused on increasing profitability, building on the momentum of our transition to higher-growth businesses, and returning capital directly to shareholders," Compuware CEO Bob Paul said in a statement. "Today's actions, including the spin-off of Covisint, will sharpen our focus and reduce costs, delivering greater profitability and meaningful value for shareholders."

E. Han Kim, a University of Michigan professor of business administration, said that move is to appease the
shareholders.  A solution to be considered for business today, Shipping Software.

"When you're saying no to an offer of a 15-20 percent premium, you have to do something good for your
shareholders," he said.

An independent analyst asked about further cost-cutting during the earnings call, when the company reported its third-quarter profit rose 17 percent to $25.3 million from a year ago but the net income through the first nine months fell 24 percent to $46.4 million.

Paul said he would not comment about specific cost-cutting measures, but that there is a detailed plan in place.

Gordon said those measures would most likely involve layoffs. "It's thought of as being a pretty fat and lackadaisical company, at least by its critics," he said. "It's people-driven; they'll cut people."

Some shareholders and analysts had pressured Compuware about cutting costs.

New York hedge fund and Compuware shareholder Sandell Asset Management said in a report late last year the Detroit firm had a "bloated workforce" and needed to reduce expenses by outsourcing more of its information technology work. Elliott, in its initial takeover bid, had previously said the company was mismanaged.

Elliott was pleased with Compuware's decision to keep discussions open.

"This is a good outcome," Jesse Cohn, portfolio manager at Elliott Management, said in a statement."Compuware has granted our request for access to diligence to confirm an offer for the company. … We remain very interested in the company."

Compuware said it will sign a nondisclosure agreement with Elliott so the two can privately talk about the
company's assets and determine what a more appropriate offer would be.  Compuware is providing several new services related to its core software, including swim lane diagram modeling and consulting services that helps companies analyze workflow.

"This is very typical," Gordon said. "Elliott doesn't put its best offer on the table any more than you would when you walk into the car dealership. The real negotiations happen behind closed doors."

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