It's CA's Charles Wang in a Sweep

Baldwin Louie — Wed, 29 Aug 2001 15:00:00 -0700

Computer Associates announced at its annual meeting Wednesday that a management-backed director slate had won all 10 of the company's board seats, beating back a challenge by four nominees that was backed by Texas businessman Sam Wyly.

At the meeting, held at a hotel across the street from CA headquarters in Islandia, N.Y., Chairman Charles Wang announced that all the members of his slate had received the support of at least 75 percent of the shareholders who cast votes. Detailed results will not be available for another two weeks.

The vote brings an end to the bid by a Wyly-backed group called Ranger Governance to push Wang off the board.

In a bitter fight, which featured repeated full-page attack ads in the Wall Street Journal and other newspapers from both sides, Wyly had originally proposed a slate of 10 directors, in an attempt to gain full control of the company's operations. But that plan was rejected as overly aggressive by both Institutional Shareholder Services and Proxy Monitor, services that advise institutional investors on proxy contests.

Wyly then revised his plan, proposing a slate of four directors that excluded Wyly himself. That plan received the backing of not only ISS and Proxy Monitor, but also Calpers, the California state retirement fund, which owns about 0.5 percent of CA's shares. Nonetheless, Wyly's group failed to win even a single seat.

Wyly suffered a major setback early in his campaign, when CA's largest shareholder, the 90-year-old Swiss billionaire Walter Haefner, vowed to vote his 21 percent stake for the management slate. Add in management's holdings, and the company started off with 29 percent of the outstanding shares already on its side.

Also hurting Wyly was the perception that he was not the ideal candidate to rescue CA. While he has a long history in the software industry - last year, in fact, he arranged the sale of Sterling Software to CA - he also had a spotty record on corporate governance issues. Indeed, Calpers at one point had attacked the governance practices of Michael's Stores, an art-and-crafts retail chain for which Wyly serves as chairman.

Wyly rightly pointed out that CA's stock has been a long-term laggard, that the company has a weak reputation among its customers, that it is less than loved by institutional investors, and that it has been frequently criticized for having weak relationships with its own employees. In the end, though, he was unable to convince enough shareholders that his own plan - he proposed breaking CA into four pieces, all of which might eventually operate as separate public companies - offered much improvement.

In a press conference after today's annual meeting, Wang conceded that having to fight a group of insurgents was a "rather sobering experience," and said the company needed to do a better job of communicating with its investors. He said the company continues to search for additional outside directors, and that it plans to expand the board by two members. He also noted that the company had begun making other changes to its operations long before Wyly began his challenge.

Steve Perkins, one of the four Wyly-backed nominees, conceded that the vote tally was no surprise, but insisted that "we accomplished a lot" with its board challenge. "Do I think we would have made additional contributions? Absolutely," he said in an interview Wednesday. "But I'm not devastated. I think we did help the shareholders."

Perkins says the company has agreed to hire a corporate governance expert and has formed a committee to examine hiring and firing practices. In addition, it has made a commitment to eliminate its much-criticized practice of reporting earnings on a complex "pro forma, pro rata" basis alongside the more typical results based on generally accepted accounting principles.

"Those are major things that, frankly, we were advocating," says Perkins, who was an officer at several Wyly-run companies. "We feel like we were the catalyst that would cause that to happen."

So is Perkins, who currently owns no shares in CA, ready to spring for some? "Not without some time going by, seeing that CA is serious about carrying through on what their commitments have been," he says.

Wang and Computer Associates CEO Sanjay Kumar probably won’t spend too much time savoring their victory. According to Peter Goldmacher, software analyst at Merrill Lynch, they have far more serious issues to address.

"This whole proxy battle was a sideshow and distraction from the real issues that CA continues to face," Goldmacher said Wednesday. "These guys generate the majority of their revenues from a market [mainframe computers] that is not growing quickly enough."

"They say they're doing the right things - ingratiating themselves to their customer base, keeping products fresh, creating a branding campaign," Goldmacher said. "All of that was announced prior to Ranger Governance coming along. They know they're in trouble. But it's a slow process, made harder by IT spending falling off a cliff. It will be a long time before you can see the results."

Consequently, Goldmacher would advise investors looking for tech stocks to shop elsewhere: "I would say now is not the right time buy CA."

In trading on the New York Stock Exchange, CA shares fell 78 cents Wednesday, to $31.93.

The Industry Standard - It's CA's Charles Wang in a Sweep - Comments

It's CA's Charles Wang in a Sweep