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Compuware to Go Private

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Compuware Corp. is reportedly up for sale. According to a recent news feed from Reuters, Compuware management has recently met private equity firms such as Blackstone Group LP, TPG Capital LP and Golden Gate Capital regarding a potential deal.

The move comes as a surprise as the Detroit-based company rejected a $3.2 billion bid from activist investor Elliott Management Corp recently in Jan, 2013. Compuware cited the $11.00 per share offer as inadequate and announced a number of initiatives that included a dividend payment for the first time in its history.

Compuware will pay a dividend of 50 cents per share beginning first quarter of fiscal 2014. The company announced a 3-year restructuring plan that will save $60.0 million annually. For fiscal 2014, the plan is expected to save a minimum of $20 million.

Additionally, Compuware announced plans to distribute its remaining shares in Covisint Corp directly to shareholders after completing the Initial Public Offering (“IPO”) of the 20% Class A stock. The initiatives not only reflected Compuware’s strong balance sheet ($64.4 million in cash & cash equivalents) but also indicated chances of further restructuring in the form of headcount reductions and divestitures.

In such a scenario, the private buyout rumors not only create uncertainty for investors but also affect the credibility of Compuware’s initiatives. Although a better buyout offer will be positive for investors, we believe that current sluggish macro-economic conditions are likely to act as an impediment towards fetching a higher price.

We believe that Compuware’s recently announced initiatives are positive for shareholders over the long term. The company is optimistic regarding its cloud computing and mobile growth strategies. Moreover, its recent better-than-expected third quarter results reflect continued demand in the APM and Covisint business, which will boost further growth going forward.

We believe that new program wins and introduction of new products will help Compuware to counter strong competition from the likes of BMC Software Inc. , CA Technologies (CA - Free Report) and International Business Machines (IBM - Free Report) going forward.

Currently, Compuware has a Zacks Rank #2 (Buy).

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