Paul Singer, the founder and CEO of $20 billion hedge fund
Elliott Management Corp., has offered to buy the public software
company Compuware Corp. (
). Singer bid $11 per share for all of its outstanding shares.
Compuware's shares had traded for between $7.35 and $9.53 in the
past 52 weeks before the offer was made. Shares then jumped 17%
to as high as $11.16 on news of the offer Monday and are priced
at $10.76 in Tuesday trading.
Compuware Corp. is focused on optimizing technology for other
businesses, ensuring that the world's most important technologies
perform at their peak. Its clients include 46 of the top 50
Fortune 500 companies and the majority of the most-visited U.S.
Its biggest competitors include IBM (
) and Microsoft (
), and its business is partially dependent on one of them. The
company says that "a substantial portfolio of our mainframe
segment revenue is dependent on our customers' continued use of
International Business Machines and IBM-compatible products."
Compuware's stock had increased 7% over the past five years to
the Friday prior to Elliott's offer. In the same period, its
revenue per share increased at an annual rate of 3.7%, EBITDA at
9.7% and book value at 8.9%. Free cash flow declined 3.7%, and
remained around $100 million to $200 million for the past decade.
Though gross margins declined for the past three years, they have
been in an overall incline over the decade.
The company warns that lower volumes of software license sales
for its mainframe solutions in recent years and the first half of
2013 is causing a decline in its mainframe revenues, which it
expects to continue. The changing spending habits and IT
computing environments of its customers are causing the declines
in volume. Declines in revenue are resulting from increased
competition and pricing pressures.
In addition, General Motors (
) in July 2012 announced it would significantly reduce its
outsourced information technology services over the next three to
five years, which could quickly reflect in Compuware's revenue
and contribution margin.
Another GuruFocus value investor,
Dodge & Cox
, is as of Sept. 30, 2012, the largest institutional investor of
Compuware, with 12.09% of its shares. As of Nov. 15, 2012,
Elliott Management is the third largest, with 5.66% of the
company, after buying 6,336,595 shares. Its total ownership
stands at 12,072,033 shares.
Elliott has a history of making long-term investments in
companies and working to create shareholder value, such as with
URL Pharmaceuticals, WorldCom Communications, Horizon Offshore
and Adelphia Communications. Most of the companies it invests in
are later acquired by other companies.
Its past technology plays include Novell, MSC Software, Blue Coat
Systems, and others.
In the second quarter of 2012, Elliott Management took an
activist position of 10.4 million shares in another tech company,
BMC Software (
), and pushed to have several representatives from the hedge fund
join its board.
Singer in March issued a presentation highlighting the weaknesses
in BMC's business execution and pushing its campaign to add new
directors to its board. In the document, it called BMC "not a
good - but a GREAT - company that can return significant and
long-overdue value to its stockholders if it chooses to embrace
new Directors with new ideas."
The full stockholder presentation on BMC is available here.
Singer's two board members joined the board in July. In October,
Reuters reported that the company was exploring a potential sale.
BMC has several things in common with Compuware, such being small
compared to competitors and facing increasing competition.
Compuware has not responded to Singer's proposal yet and is still
reviewing the proposal with its financial and legal advisers.
See more about Compuware's fundamentals at its
10-year financials page
. See Paul Singer's
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