CA to buy Niku for $350 m cash

Wei Gu

NEW YORK: Computer Associates International Inc. said on Thursday it plans to acquire Niku for about $350 million in cash to strengthen its software that tests and manages the performance of computer systems.

Computer Associates will pay $21 a share for Niku, which represents a 27 percent premium over Niku's Wednesday's closing price of $16.50 a share.

The offer values Niku at more than five times its last year's sales or about four times this year's projected sales. Analysts said the premium is reasonable for a company which grew 40 percent last year and is profitable.

Niku makes software that helps companies manage their existing technology better, which is in demand as companies are trying to do more with the software that they already own.

"CA was badly missing a spot in that IT governance portfolio," Lazard analyst John Rizzuto said. "Niku is in a great industry."

Computer Associates, which already has a joint marketing agreement with Niku, announced the deal less than a month after Niku posted a lower-than-expected quarterly profit. Sales of new software missed Niku's original expectations but analysts said the market for this kind of software remains strong.

Islandia, New York-based Computer Associates has embarked on a buying spree again after putting its accounting problems behind it.

The deal also could hurt Redwood City, Calfornia-based Niku's larger rival Mercury Interactive Corp., which has the most comprehensive offering in the industry.

"There will be more competition for Mercury because Niku now has a larger parent," Needham's analyst Richard Davis said.

Niku's CEO Joshua Pickus will join CA as senior vice president of business service optimization. CA expects the vast majority of Niku's 290 employees will remain with it after the completion of the transaction in three months.

The deal is expected to close within three months, slightly dilute CA's earnings in fiscal 2006, and slightly add to its earnings in fiscal 2007, Computer Associates said.

Niku has been profitable for 11 consecutive quarters. But the deal will hurt CA's earnings this year because CA uses a deferred revenue accounting model which reduces current period sales and increases future-period sales.

"On an economic basis, it will add to earnings," CA's Chief Operating Officer Jeff Clarke told Reuters. "But on an accounting basis, it would be dilutive in the first year."