CA bidder fails to convince Wall Street

Ilaina Jonas

NEW YORK: Texas billionaire Sam Wyly, waging a war to wrest control of the
world's No. 4 software maker, tried to convince Wall Street on Wednesday that
his plan to break Computer Associates International Inc. into four parts would
get profits flowing by freeing talented employees from an oppressive management.

But Wall Street yawned. "We believe there were no new issues raised
during this conference call," Andrew Brosseau, SG Cowen analyst wrote in a
research note. Wyly and two members of his Ranger Governance Ltd. takeover group
detailed their plans for Computer Associates should they win their proxy fight
to control the company.

"We continue to believe that Ranger will be unsuccessful in its bid for
CA, and as proxy deadline draws near, expect Wyly to become less and less of a
factor," Brosseau wrote. "The devil is in the details and it's hard to
understand how a hostile takeover of Computer Associates has the potential to
garner the support of CA employees and senior executives," Credit Suisse
First Boston analyst Wendell Laidley said.

Wyly has asked shareholders to vote on Aug 29 for a slate of 10 board
candidates he proposed instead of the present board. Wyly is seeking to have the
new board, of which he would be a member and most probably its chairman, to oust
firm chairman Charles Wang, and chief executive and president Sanjay Kumar.

"The appointments of a 10-member board in a hostile context is hardly
the magical elixir that will solve CA's challenges in a manner that is
incrementally better than what CA is doing today," Laidley said. "I've
heard zero discussion of who the proposed operational executives would be, i.e.
who is going to run sales and marketing."

Are four heads better than one?

The Ranger group proposes to break the company, maker of nearly 1,200
software products, into four groups - storage management, security management,
network management and knowledge management. Each group would have its own chief
executive. Wyly has outlined this plan before.

The knowledge management unit would oversee existing database application
development, information retrieval and other products as well has house Computer
Associates own company wide corporate functions such as finance and legal.

Ranger intends create development teams and reward them with royalties for
the new products they create. "This is not a breakup strategy, its a break
out strategy to liberate smart folks to achieve growth," George Ellis, a
former chief financial officer of Sterling Software and Ranger team member,
said.

Additionally, the Ranger group intends on creating a "elite national
account organization," for large clients. The elite sales force with four
separate business units. "We think it's just the most natural arrangement
in the world," Stephen Perkins, proposed board member and co-founder of
Sterling Commerce told Reuters. "And it's the one that's going to allow the
customers to enjoy a much better relationship with CA."

A study Islandia, New York-based Computer Associates commissioned itself,
showed that a majority of those corporate chief information officers surveyed do
not think CA representative understand their business. But Merrill Lynch analyst
Peter Goldmacher said he didn't believe Ranger's plan was the answer to CA's
problems.

"There is no panacea to cure what currently ails CA, only time, hard
work and execution," he said. "The fact that the company generates
roughly half its revenues from the slow growing mainframe market will not change
with a new execution strategy. These kinds of transitions just takes time."

Last year when firms such as Computer Associates, BMC Software Inc. and
Compuware were battered by a fall off in mainframe software sales, each has
tried to tear itself away from a dependence on those sales. Instead they have
focused on beefing up their sales of software made for networked computer
systems.

Goldmacher said each growing software company reaches a point where the
breadth of its product offerings exceeds the capabilities of one single sales
person to accurately represent them all.

"While breaking up the company into four separate operating units to
better represent unique product families could work, it is by no means a sure
thing," he said. "One must consider the risk associated with
fragmenting what could be considered a comprehensive CA solution encompassing
all four divisions."

Instead Goldmacher pointed to BMC's new sales strategy of having one
representative selling the BMC "vision," and coordinating the
appropriate product family specialists to address the opportunity, by product
family, in each sales situation.

Laidley said that breaking the company apart wouldn't make it better focused
or more accountable, just more costly to operate. "Instead of achieving
economies of scale inherit in a larger organization, and amortizing the
infrastructure cost across the different product areas, under the Wyly plan it
would appear each bushiness unit is forced to replicate the infrastructure
creating a higher fixed cost within each business unit," he said.

(C) Reuters Limited 2001.