Sam Wyly May Yet Get His Way at CA

Sam Wyly's battle for Computer Associates (CA ) rages on. That in itself is a surprise. As recently as Aug. 15, the controversial Texas financier's summer-long attempt to take over the board of the software giant seemed to be petering out. Wyly had failed to line up enough support for his plan to overthrow Computer Associates International Inc.'s chairman and founder, Charles B. Wang, and the rest of the 10-member board. Wyly also sought to break the company into four pieces. But his push had been rejected as too radical by two influential firms that advise shareholders on proxy fights, and CA partisans all but declared victory.

Not so fast. Wyly quickly revised his plan, offering up instead a "short slate" of four nominees to CA's board--and this time, his name wasn't on it. The new plan has won the support of CalPERS, the influential California state pension fund. And the proxy advisers, whose recommendation can sway the votes of large institutional investors, changed their minds as well. Their take: By removing his controversy-laden name from the slate, Wyly gave shareholders a chance to rock the boat without the risk of throwing the world's third-largest independent software company off course.

TO THE WIRE. With such powerful support, the proxy fight could come down to the wire. But Wyly has his work cut out for him. He owns just 100 CA shares outright, though he holds 1.5 million CA stock options. And Swiss investor Walter Haefner, CA's largest shareholder with 21%, has already pledged to support Wang, despite a longstanding friendship with Wyly. Add in the votes of insiders, and Wyly has to win more than half the votes of institutional investors to prevail at the Aug. 29 shareholders meeting.

Still, Wyly's backpedal has given him a real shot at shaking up CA. If his nominees are elected, Wyly will have four close friends on the board, and he has vowed to hand them 20,000 CA stock options apiece if they win. His goal, he says, is to try and force CA to address longstanding charges of questionable accounting, poor customer service, and lax corporate governance.

Win or lose, the Wyly agenda is sure to shake life up for Wang. Wyly has complained about how Wang treats employees and companies he's acquired. If Wyly wins, Wang will be out of a job. Even if Wyly loses, Wang will have to reach out to investors and cop to longstanding image problems. "In any part of the company...I think we can do better," he says.

Many shareholders would agree. CalPERS says CA's new way of reporting financial results is confusing, and others worry that it masks problems in generating new revenue. And CA's poor relationships with customers have caused it to miss countless opportunities to enter new growth areas, CalPERS adds. Then there's the $1.1 billion in stock options the board awarded to Wang, CEO Sanjay Kumar, and Executive Vice-President Russell Arzt in 1998. "It left a lot of bad taste in the mouths of investors," says the head of a large institutional shareholder.

Wyly, of course, is the least likely of governance crusaders. In 1998, CalPERS blasted the Wyly family's chain of craft shops, Michaels Stores Inc., for "some of the most egregious corporate-governance practices and performance among [its] peers." In 1996, when Wyly was chairman of Sterling Software, he was chided for taking the highest pay package given to a non-CEO, $69.6 million. It didn't help that the boards of Sterling and other Wyly-owned companies were dominated by friends and family members.

But a successful turnaround has quieted many critics. He sold Sterling to CA for $3.9 billion in March, 2000, just as the tech bubble was bursting. And he has overhauled the Michaels board, removing himself as chairman and eschewing a poison pill. "I'm a born-again good-governance guy," Wyly boasts.

Well, that may be a stretch. But it sure helped his cause that Wyly took himself out of the running for the CA board, says Ted White, manager of corporate governance for CalPERS. "I'm willing to give Wyly the benefit of the doubt," he says. The fund, which owns 3.1 million shares of CA, or 0.5%, had planned to vote for CA's existing board but will now vote with Wyly.

This takeover artist may find that straight-and-narrow is the path to success after all.

By Andrew Park in Dallas

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