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CA, the No. 2 vendor of mainframe software, could tap part of its USD 1.9bn in cash for acquisitions, the company’s new CFO Nancy Cooper told mergermarket.
”We are looking for acquisitions that contribute to our strategic focus and add at least 1% to sales,” she said at the company’s first meeting with investors in years last week. At the same time, Cooper said the listed software giant based in Islandia, New York, is still paying for its ”serial acquirer” days under prior management and will be circumspect going ahead.
Cooper also forecast cash flow for the year ending 31 March could reach USD 1.1bn and did not rule out buying back shares, a common indicator of future acquisitions. ”There’s no reason why” CA won’t buy back shares, she said. But it did not announce any new actions.
Under founding CEO Charles Wang and his successor, Sanjay Kumar, who began a 12-year prison term on 15 August for fraud, obstruction of justice and other securities violations in a USD 2.2bn scheme, the former Computer Associates International acquired dozens of smaller software companies. New CEO John Swainson, said those days are over but that CA will look at targeted future deals.
An industry banker suggested a cleaned-up CA, with a market capitalization of USD 13.1bn and enterprise value of USD 13.8bn, could attract a bigger US or foreign software bidder like Germany’s listed SAP, seeking to bolster its US presence. Earlier this year, industry experts had mulled CA as an attractive LBO candidate.
Current CA board members include Gary Fernandes, a retired senior executive of listed Electronic Data Systems, and Ron Zambonini, chairman and former CEO of listed Cognos of Canada, which has agreed to a USD 4.9bn bid from listed IBM, the No.1 mainframe software company. But a second industry source said CA may not be all that attractive because its business is not growing that much and its shares remain expensive.
CA shares fell 2.6% by midday Tuesday to USD 25.45. Its P/E ratio is 25.7, compared with listed Microsoft’s 21.5.
Cooper, Swainson and other senior CA executives said they are not thinking of being acquired. But they acknowledged the company must raise its non-US sales from the current 42%. By contrast, listed Hewlett-Packard recently reported non-US 4Q sales of 67%.
EVP Ajei Gopal, head of the management and security business unit, said CA is unlikely to target offshore companies for acquisition just to grow share. Instead, CA plans to concentrate more on cross-selling products to many of its mainframe customers that could also buy data center, networking and security products, said COO Mike Christenson.
Gopal and other CA executives declined to say whether they had looked at frequently mentioned targets including listed NetManage of California, which agreed to be acquired last week; listed Sourcefire of Maryland; listed BladeLogic of Massachusetts, and private players including Liquid Machines of Massachusetts and Abaca of California.
CA has an in-house team evaluating targets, which was active in mid-2005, shortly after Swainson arrived from IBM as CEO. CA then spent more than USD 1bn to acquire several companies in network management and security, including listed Concord Management of Massachusetts, Niku of California and private Wyly Technologies of California. But takeover activity largely dissipated this year.
Gopal and Cooper said CA may continue to divest slow-growth lines, such as database provider Ingres, a California unit that plans an IPO next year, its CEO said in a recent interview. CA sold a majority interest in Ingres to private equity firm Garnett & Helfrich in 2005.
By 31 December, CA plans to conclude a previously announced deal with India’s listed HCL Technologies under which HCL will undertake all future research and development for its threat management security lines, with an estimated USD 100m in annual revenue. CA will market the brand worldwide. Other similar partnerships could come for other lines, the executives said.
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