Wyly drops Computer Associates proxy fight

NEW YORK (Reuters) -- Computer Associates International on Wednesday said it agreed to pay Texas billionaire Sam Wyly $10 million to drop his latest battle for seats on the company's board for five years.

In return, the business software maker agreed to add another outside director to its board.

Under the agreement, Ranger Governance, a group Wyly created and bankrolled, will drop its current fight to gain five seats on the software maker's board.

It also prohibits Wyly, who lost a similar fight last year, from mounting another challenge for five years.

The deal calls for Computer Associates to name a new outside director to its board by year-end, bringing the number of board members to 12, nine of whom are outside directors.

Wyly had been seeking to oust Computer Associates Chairman Charles Wang and Chief Executive Sanjay Kumar.

With the proxy fight out of the way, however, Computer Associates still has to contend with two federal investigations into its past accounting practices.

"The stock is suffering from I think excess controversy," said Edward Schrems, analyst with Tom Johnson Investment Management.

Shares of Computer Associates on Wednesday rose 41 cents, more than 5 percent, to $8.49 at the close on the New York Stock Exchange. Computer Associates shares hit a nine-year low on Tuesday. a day after the company reported its quarterly results and trimmed its outlook for the year.

Wyly praises company

After the agreement, Wyly--who in the past bitterly criticized the company's management for creating what he called a culture that abused employees and customers--said Computer Associates was "on a course to being recognized as the gold standard in good corporate governance."

Wyly also had said the company's new subscription-based accounting was a smoke screen to cover up failing results.

The $10 million payment, covers the five-year standstill agreement, during which Wyly will be prohibited from engaging in proxy fights with Computer Associates.

It also extends a non-compete agreement that Wyly reached with Computer Associates as part of the $4 billion sale of Sterling Software to the company in 2000. At that time, Wyly was paid $16 million for an agreement not to compete with Computer Associates.

The agreement came together after face-to-face meetings that included Kumar and Wyly, Stephen Perkins, president of Ranger Governance, told Reuters.

"We think that they're going to have a real heavyweight to put on the board, that will help run the board," Perkins said. "I'm not going to get into the who's because it hasn't happened yet," he said.

A spokesman for Computer Associates declined to comment about a potential board candidate.

"We are pleased to put this matter behind us," Sanjay Kumar, chief executive of Islandia, N.Y.-based Computer Associates. "In conversations with Ranger over the last few days, it has become clear that Ranger and we are largely in agreement on corporate governance issues."

The agreement raised some comparisons with the "greenmail" tactics of 1980s corporate raiders, Schrem said.

"I guess it somewhat smacks of the old-fashioned greenmail," Schrems said. "It's kind of a small potatoes compared to the way Boone Pickens would have done it."

Greenmail, also known as a bon voyage bonus or good-bye kiss, is payment to a corporate raider who agrees not to buy any more shares or pursue a proxy fight for a number of years.

John Wilcox, vice chairman of proxy solicitor firm Georgeson Shareholder Communications disagreed.

"Greenmail is a payment in which one shareholder gets money and the other shareholders don't get anything," Wilcox said. "In this case, there's a stated quid pro quo for one thing, in which there's an extension of a non-compete and a standstill agreement, which is ostensibly what they're paying the $10 million for.

"There's also the fact that this guy Wyly waged and paid for a proxy fight last year, which arguably has induced substantial changes in the company that are going to benefit shareholders," Wilcox added.

Last year, Wyly launched a bid to take over Computer Associates by ousting the entire board. That challenge failed to get enough shareholder votes.