|[December 04, 2012]
Sandell Asks Compuware to Act with More Urgency to Maximize Shareholder Value
NEW YORK --(Business Wire)--
Sandell Asset Management Corp., owner of approximately 2.5% of Compuware (News - Alert)
Corp (NASDAQ: CPWR), announced today that it communicated last week with
Mr. Robert Paul, Chief Executive Officer of Compuware, and its Board of
Directors that Sandell desires the Company to act with greater urgency
to maximize shareholder value as Compuware currently trades at a
significant discount to its sum-of-the-parts valuation.
In addition to the filing of the Covisint IPO, which is expected
imminently, Sandell asks that the Company take immediate action to 1)
rationalize its cost structure, bringing margins in-line with peers and
2) sell or spin-off its APM (News - Alert), Mainframe and other segments to better
operationally and financially align employees and shareholders with each
To this end, Sandell sent the following letter to Compuware's CEO and
Board of Directors this morning and has made public the White Paper (News - Alert) that
it sent to Mr. Paul and Compuware's Board of Directors last week. A full
copy of the White Paper can be found here: http://www.sandellmgmt.com/news/Immediate_Value_Maximization_at_Compuware_CPWR.pdf
December 4th, 2012
Robert C. Paul
Chief Executive Officer
One Campus Martius
Detroit, MI 48226-5099
cc: Board of Directors
Dear Mr. Paul,
As you know from our prior communication with you, we are shareholders
of Compuware, owning approximately 2.5% of shares outstanding, and have
invested because we believe the Company is substantially undervalued
with over 80%+ upside in your shares. We had hoped that the Board and
management would take action to realize that potential value, but are
discouraged by the lack of urgency.
While we appreciate your recent comments at the Credit Suisse Technology
Conference on November 28th, we challenge you to actually
follow through on these opportunities. In addition to the "imminent" IPO
filing of Covisint, the Company must take action to 1) rationalize its
cost structure and 2) spin-off or sell its remaining businesses in order
to maximize shareholder value in the most tax-efficient manner.
Management has the tendency to over-promise and under-deliver. You are
already off-track in accomplishing your financial projections for
FY-2013 presented nearly a year ago at your December 2011 Investor Day.
The Company has been plagued by failures of execution, most recently in
poor sales performance in the APM Europe segment, resulting in a
reduction in FY-2013 earnings guidance and a 12% drop in the stock.
Furthermore, the Company has lagged its peer group for the past five
years, underperforming the S&P North American Technology (News - Alert)-Software Index
Fund and the S&P 400 Midcap Software Index by 20% and 60%, respectively.
As we are sure you would agree, the sum-of-the-parts valuation of the
Company substantially exceeds the current stock price, and a separation
of these businesses would significantly enhance stockholder value. We
also believe that the current conglomerate structure significantly
increases the risk that the Company will not be able to retain and
motivate its sales force - a risk that could undermine future growth in
the APM segment. In addition, we believe there are abundant
opportunities to reduce legacy costs and increase employee productivity,
and in turn the Company's profitability.
We believe there are several opportunities to immediately narrow the
Covisint IPO - Management has recently commented that the S-1 filing
is imminent with a completion of the IPO still expected in FY-2013.
Any slippage of this timing will only further damage management's
Cost rationalization -LTM operating margin (GAAP) is 60% and 30% below
its mainframe and broader software peer groups, respectively.
Management can improve profitability via redundant personnel and
facility elimination and providing long-term compensation incentives
for management based on unit level profitability targets.
Sell / Spin-Off APM - The recent acquisition of competitor OPNET by
Riverbed (News - Alert) Technology at 4x EV/revenues highlights the strategic value
of this business. Based on our industry discussions, the
Gomez-dynaTrace APM business should command a premium valuation to
OPNET. A sale or spin will ensure that key management and sales people
at APM stay financially motivated to grow the APM business.
Sell Mainframe and remaining assets - Compuware should sell Mainframe
to financial or strategic parties to maximize the unit's significant
free cash flow generation. An LBO of Mainframe could comfortably
generate a 20% IRR. We believe that Uniface, ChangePoint and the
Professional Services unit are also better suited with third parties.
We implore management to capitalize on these opportunities as investors
can no longer sit around and simply listen to management comment about
how they can improve the Company's valuation. It is time for action, not
more empty statements of intent. Should you fail to promptly take
steps to increase stockholder value, we would favor a change to the
Board composition at the next annual meeting.
Thomas E. Sandell
Chief Executive Officer
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