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Going in for the CA kill

Texas billionaire and investor Sam Wyly is setting his sights on Computer Associates, aiming to replace current management with a new board.

Often, when investors are unhappy with the way management is running a company, they simply sell the company's shares.

Not Sam Wyly. The Texas billionaire and investor has taken his fight with the management of Computer Associates International to shareholders, launching a takeover bid for the company--a plan that includes naming Wyly chairman of a completely new board.

Wyly's history with Computer Associates goes back more than a decade. He sold two companies to CA: Sterling Software last year in a deal worth $4 billion and University Computing in 1987 for $840 million.

The billionaire's interests aren't exclusive to technology. Wyly runs the Ranger Governance investment fund and is chairman of "green" utility Green Mountain Energy. In addition, he owns Michael Stores, an arts-and-crafts chain.

Wyly has accused CA management of "chronic abuse of customers and employees" and using accounting tricks to artificially boost sales figures.

He has proposed splitting the company into four divisions: storage, security, systems management and knowledge management. And he has come out strongly against CA's new business model, which allows the company to record software sales over the life of a customer contract, instead of when the deal is signed.

A shareholders' meeting is scheduled for August, when investors will decide whether to stick with the current CA board or go with Wyly's plan.

CNET spoke with Wyly about his vision for Computer Associates and how he plans to keep the company growing if he wins.

Q: Why did you decide to push this takeover plan?
A: I was looking through their documents, and I said, "They don't have a staggered board." If they had a staggered board (in which members have terms that expire in different years) we couldn't do this.

Month by month, (CA) gave me evidence of badly mistreating Sterling employees. When they first came in (to buy Sterling), we raised the question of their poorly mistreating employees and customers. They said, "We changed." But in case by case we saw evidence that they had not changed, that they had the same MO.

What do you think your odds are?
I'm highly confident we're going to win. Back in 1985 we acquired Informatics; that was hostile, and we won.

You currently own around 1 percent of CA. Why don't you own more? Put another way, should people take you seriously when you aren't a committed shareholder?
Well, we think $65 million is serious. We've watched it shrink from twice that much, and that's no fun.

It gets down to this: When we acquire controls so we can implement our plan to do away with this monolithic management structure, this Stalingrad-through-the-commissars type of management structure; when we can do that and decentralize and get it growing, take advantage of these new products; when we know we can do that, we will invest more. We will raise our investment maybe to around $250 million.

We have $250 million in Michaels and $150 million in Green Mountain. Clearly (we'll) raise our investment to something around those levels and more. But until all of these independent shareholders tell us that they want us to make this company grow, we're at risk that the incumbents may stay there. If they do, we think our $65 million will shrink in three years to half that.

What will you do if you fail?
I'm already a billionaire. I'll go to Colorado and watch the Woody Creek go by. I'll learn how to fish.

If you win, how long will it take you to turn the company around?
We'll do it quickly. We have a lot of people who know how to do this. We will quickly assemble a good team. There's some very, very bright and able people in CA, they're coming to us and say we can help.

Many think that the real problem is CA's core market; the software sector is suffering. Why would your board do any better than the current one?
That's just not true. In the last five years after the crash, the average stock in the software index has earned 170 percent. These guys have lost 11 percent, so that's just not true. They are under-performing and losing market share to their competitors because they are buying products and milking them to the extreme. They are not investing in product enhancements, not investing in add-ons. They can't grow under this autocratic management structure and this oppressive culture. August 29 is liberation day.

Your reorganization plan looks like it would move toward breaking up the company and spinning off different divisions, which would boost the stock in the short term. But what about long-term growth?
The whole point is long-term growth, whether you keep them all together in one like Lou Gerstner did at IBM, or you split them up like we did at Sterling Commerce (which was sold to CA and SBC Communications). My best guess is that three years from now we would have liquidated CA into four independent public companies run by their chief executives and boards of directors. Two will be very fast-growth businesses, and others solid businesses that won't be growing as fast.

CA management says your proposed structure would make things more difficult for customers and employees. They argue that it is better to present a unified front to consumers.
That is flat not so, but that is their attitude. They have the sales reps spend more time saying, "I've got you, so let's make a deal," instead of saying, "How can we help solve your problems and offer you solutions to your needs?" Under the new structure, the people interfacing with the customer will be far more knowledgeable about the products and the needs the customers have.

The vehemence you bring to the table makes this sound like it's more than a business deal, that it's personal. Is it?
My letter (to CA executives) says "nothing personal." It's so clear that these folks need to go. They don't treat people decently, and they don't treat customers decently. They're saying, "Hey, we've got Walter Haefner's vote (Haefner is the largest individual shareholder of CA and has backed current management), so no one else needs to show up." That's been their attitude for 13 years. Wang has said, "I've got Walter's vote. I don't care about anyone else."

It's really going to be a healthy thing for these folks to come up for re-election and get beat. It's really a healthy thing for all businesses. People have been outraged about CEO pay, especially when it's not tied to performance.

So you think other investors will follow your lead?