Investors Raise Heat on CA

Sam Wyly's Ranger group plots takeover, but company's recent positive results belie group's charges

A group of investors led by entrepreneur Sam Wyly last week continued its aggressive takeover bid for Computer Associates International Inc., including taking out a full-page advertisement in The New York Times that slammed CAs treatment of its customers and employees.

Wyly, founder of Ranger Governance Ltd.—the group that announced its takeover bid June 21—proposed that a new board be elected to lead the Islandia, N.Y., software company and that CA should be split into four separate business units. It also proposed that Wyly be elected chairman of the company.

Ranger Governance, in Dallas, is run by Wyly and his family. Wyly is proposing that shareholders approve the new board at CAs annual meeting Aug. 29.

Wyly, former chairman of Sterling Software Inc., which was purchased by CA last year in a $4 billion stock swap, also released details of a survey that suggests widespread unhappiness among CAs customers and employees.

According to the survey, one in three customers say the word "honesty" applies to CA, and one in five say the company has integrity.

The survey was conducted by research company Penn, Schoen & Berland Associates Inc., with offices in New York, Denver and Washington.

The survey also says that only 15 percent of CAs customers feel the company treats them well.

In a statement, CA President and CEO Sanjay Kumar said the methodology used in the survey was "fundamentally flawed" and "self-serving."

Amid the turmoil stirred up by the takeover attempt, CA last week appointed two members to its board of directors. Appointed were Lewis Ranieri, founder of private investment company Hyperion Partners LP and chairman of Ranieri & Co. Inc., also a private investment company; and Linus Cheung, former CEO of Hong Kong Telecom and deputy chairman of Pacific Century CyberWorks. One of CAs largest shareholders, Walter Haefner, last week threw his support behind Kumar and Chairman Charles Wang.

The four divisions proposed by Ranger Governance would focus on storage, security, systems and knowledge management.

Each division would have a CEO, although no CEO would sit on the board of directors. Wyly indicated that each division would get its executives from among current CA managers.

Ranger Governance also indicated that the board would determine whether the four divisions would remain as one company or be spun off into separate businesses.

Wyly has said that creating the four units would make CA more responsive to customers.

One analyst disagreed.

"The fact that he wants to carve this up into four separate companies shows an excellent level of ignorance about what CA is doing," said Valerie OConnell, an analyst at market research company Aberdeen Group Inc., in Boston. "With four totally unrelated, unsynergistic units—how does that create shareholder value?"

Ranger Governance claimed that CAs share price has fallen over the last five years. CA counters, however, that its share price has risen 72 percent in the last six months.

"Our management and board have done well for CAs shareholders, and we intend to strongly oppose Mr. Wylys proposal," Kumar said in his statement. "We dont believe our shareholders are going to ignore our results and turn this company over to Mr. Wyly, and, indeed, our largest shareholder has already reaffirmed his support for CAs management and board."