Compuware Set to Go Private, Thoma Bravo Offers $2.5B - Analyst Blog


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Compuware Corp. ( CPWR ) is finally selling itself to private-equity firm Thoma Bravo for approximately $2.5 billion. Under the agreement, shareholders will receive $10.92 per share, which is a premium of approximately 17% from Compuware's closing stock price of $9.35 on Aug 29. Shares surged 13.3% to close at $10.59 on Sep 2.

Compuware provides software solutions and services that help in managing distributed web-based applications and mainframe systems. The company reported revenues of $720.8 million in fiscal 2014, which was almost flat with fiscal 2013.

Although the current deal is subject to customary shareholder and regulatory approvals, it has already received support from one of the major shareholders Elliott Management Corp. Thoma Bravo and Eliott Management have entered into an agreement regarding the deal, which removes a major obstacle for the completion of the transaction.

Elliott Management holds almost 9.5% of Compuware shares and has been a long-time supporter of a buyout. The hedge-fund kept management under significant pressure since its $11.00 per share offer was rejected in Jan 2013. At that time, Compuware turned down Eliott Management's total deal offer of $2.3 billion on the grounds of inadequacy.

Post Elliott, Compuware had reportedly solicited a number of other private equity funds such as Blackstone Group LP, TPG Capital LP and Golden Gate Capital for a possible buyout. However, weakening order growth on the backdrop of slowing IT spending did not attracted the private-equity players.

Bowing to pressure from institutional investors, Compuware announced a restructuring program that included dividend payment, spin-off of Covisint, divestiture of non-core assets and cost control initiatives. In Jun 2013, Compuware paid its first dividend of 12.5 cents. The company completed the spin-off of Covisint Corp. ( COVS ) in Sep 2013.

The restructuring program is expected to save approximately $60.0 million over the next three years. For fiscal 2014, the plan is expected to save at least $20 million.

In fourth-quarter 2014, Compuware successfully completed the divestiture of its Changepoint, Professional Services and Uniface business segments to Marlin Equity Partners. The company also started exploring the feasibility of separating its APM and Mainframe operations as independent entities.

Although Compuware has an innovative product pipeline and its restructuring program is expected to boost profitability, the results are expected to remain subdued due to sluggish IT spending environment. Moreover, intensifying competition from the likes of Hewlett-Packard ( HPQ ) and Computer Sciences Corp. ( CSC ) may hinder further growth.

In this scenario, we believe that Thoma Bravo's buy-out offer is significantly beneficial for shareholders. The deal is expected to close in early 2015.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: HPQ , CSC , CPWR , COVS

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