By Anupreeta Das
(Updates with comment from BMC Software)
Of THE WALL STREET JOURNAL
Elliott Management, the hedge fund that is pushing BMC Software Inc. to sell itself, renewed its demand Thursday, with a presentation making the case for a sale and listing potential acquirers.
Elliott also suggested other options for BMC to boost the value of its stock, including taking on debt or using cash to buy back shares, or paying a dividend.
The Houston-based company makes software that businesses use to manage, simplify and automate their IT with the goal of running their computer networks more efficiently.
Elliott outlined its concerns in a 36-page presentation filed with regulators Thursday morning. It also sent a letter to BMC’s board, in which it said other BMC shareholders agree with its view and “like us, remain frustrated by the board’s intransigence.”
A BMC spokeswoman said Thursday, “As previously said by the company, the BMC board does not believe the Elliott proposal is in the best interests of our stockholders. BMC is focused on creating value for all stockholders through the execution of its differentiated strategy to provide the most comprehensive portfolio of heterogeneous integrated IT management solutions to enterprises of all sizes around the world.”
The company in May adopted a shareholder-rights plan, or “poison pill,” to thwart a hostile takeover. But the spokeswoman said Thursday, “as a public company, BMC is always open to any alternative that fully reflects the value and prospects of the company.”
Elliott said in the presentation that BMC’s stock price has flagged and underperforms peers such as CA Inc. BMC shares had lost about a fifth of their value over the past year before Elliott entered the picture a couple of weeks ago.
The fund also tracked the performance of BMC’s two main business units and said they suffer operational inefficiencies due to “poor management execution.”
Elliott, which oversees $20 billion in assets, now owns 6.5% of BMC, up roughly a percentage point from May 14, when BMC disclosed the stake.
The activist fund said in its presentation the company could start on the path of change by accepting its four director nominees, who have experience in the tech industry. A fifth candidate that Elliott had earlier nominated is not on the latest slate. A person familiar with the matter said Elliott reserved the right in its nomination documents to lower the number of nominees, and decided to do so to focus on candidates who brought the most relevant expertise to help turn BMC around.
If its nominees are elected to BMC’s board, Elliott said the company would pursue options that would boost returns for shareholders, such as a sale of the company to a rival or private-equity firm.
The activist fund listed eight potential acquirers of BMC, each of which Elliott said would find merit in a deal, either to expand into information-technology management software with BMC’s products or enhance their presence in that market. Elliott listed, International Business Machines Corp., Oracle Corp., Hewlett-Packard Co., Dell Inc., Cisco Inc., EMC Corp., CA and Symantec Corp. None of those much-larger companies, which focus on providing some combination of hardware, software or IT services to business customers, has publicly expressed interest in buying BMC.
BMC has two divisions: manages “distributed” networks of server computers, the other manages older “mainframe” computers.
Analysts have already named those and other large tech companies as potential buyers of BMC. However, some analysts have cautioned BMC might not find a buyer for the whole company, even if it puts itself up for sale.
In a May 15 research note, J.P.Morgan Securities LLC analyst John DiFucci went through the same list of buyers that Elliott suggested and explained why each of them might be interested only in one part of BMC, if at all.
Elliott also listed as potential buyers a handful of buyout firms–among them KKR Co., TPG, THL, Bain Capital, Blackstone Group, Apax Partners and Golden Gate Capital–that have focused on software deals in the past. Private equity could be interested not just in the older “mainframe” IT management business, which generates steady cash flow but isn’t considered high-growth, but also the entire company, according to Elliott.
Although financing is available for buyout deals, BMC’s market capitalization is around $7 billion, which could make a take-private transaction a big bite for any single firm. Most private-equity deals in recent months have been below $5 billion.