Recently, Elliott Management Corp declared its intention to buy Compuware Corporation for $2.3 billion. Elliott Management offered $11.00 per share or a premium of 15% on the Compuware’s Friday closing price for acquiring the company.
Headquartered in New York, Elliott, which owns an 8% stake in the company, is mainly engaged in extensive research to resolve any investment related problems. It has a total asset of nearly $20 billion.
Elliott Management through a letter stated that although Compuware is a well-established company, its profit and growth prospects were not quite impressive in recent times. Hence, with the proposed acquisition, Elliott management is expecting to reinstate the company’s leading position in the software and technology service sectors and increase its shareholders’ value in the long run through its extensive experience in the specified industry.
After the proposal, the company’s share surged nearly by 13.5% to $10.82 on Tuesday. Year-to-date, the company’s value soared by 31.3%.
Later, the company through a statement confirmed that it has received the proposal and it will weigh and consider the offer. Sandell Asset Management, which owns about 2.5% stake in the company, has also agreed to the acquisition proposal.
In a different story, the company is likely to make an initial public offering (IPO) of its Covisint Corp. segment. This was done with the clear intent of raising the functionality of the specified sector.
Earlier, Compuware reported earnings per share of 5 cents in the second quarter of fiscal 2013, compared to 10 cents in the year-ago quarter and 5 cents in the previous quarter. The earnings in the reported quarter missed the Zacks Consensus Estimate of 6 cents per share.
Total revenue for the quarter came in at $220.6 million, declining 15.4% year over year and 2.5% sequentially. The company reduced its revenue guidance from $1.04 billion to $1.05 billion to $980-$995 million for fiscal 2013 along with earnings per share of 36– 40 cents from 43-47 cents. Judging by the depressing state of affairs in which the company now operates, the offer of acquisition may appear advantageous for Compuware.
Compuware operates in an intensely competitive landscape. Rivals include BMC Software Inc. , CA Technologies (CA) , IBM Corporation (IBM - Analyst Report) . In the software business, the company is always under pressure for innovating new products to attract new clients and also maintain the existing associations which may appear to be expensive.
The current Zacks Consensus Estimates for the third quarter of fiscal 2013 and for fiscal 2013 are 11 cents per share and 38 cents per share, respectively. The company currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We also have a Neutral recommendation on the company’s stock.