Compuware Corp. (CPWR) recently confirmed the spin-off of its enterprise collaboration company, Covisint (COVS). The company announced that it will distribute all of its equity interest in Covisint to Compuware shareholders and holders of Compuware restricted stock units (RSU).
Depending on the number of Compuware shares outstanding and shares deliverable under RSUs as of Oct 8, 2014, holders of Compuware common stock and RSUs will likely receive approximately 0.1402 shares of Covisint common stock for each outstanding share.
Per the announcement, the distribution will be effective on Oct 31, 2014. Post spin-off, Compuware will cease to own any interest in Covisint.
Initially established as a business-to-business marketplace, Covisint now targets a broader arena that include healthcare, oil and gas.
We hold the spin-off to be a major positive, as it will enable Covisint to take decisions on its own without any interference. On the other hand, the spin-off will help Compuware to focus solely on its its core Application Performance Management (APM) and Mainframe businesses as well as to realize shareholder value fully.
Meanwhile, Compuware has struck a deal to be taken over by private-equity firm Thoma Bravo for approximately $2.5 billion. Under the agreement, shareholders will receive $10.92 per share. This deal is now awaiting certain regulatory approvals.
Thoma Bravo and Eliott Management have reached an agreement regarding the deal, which removes a major obstacle for the completion of the transaction. Elliott holds almost 9.5% stake in Compuware and has been supporting the above-mentioned spin-off for a long time.
Under pressure from institutional investors, Compuware announced a restructuring program that included dividend payment, spin-off of Covisint, divestiture of non-core assets and cost control initiatives. In Jun 2013, Compuware paid its first dividend of 12.5 cents. The restructuring program is expected to save approximately $60.0 million over the next three years.
In the fourth quarter of fiscal 2014, Compuware successfully completed the divestiture of its Changepoint, Professional Services and Uniface business segments to Marlin Equity Partners. The company also started exploring the feasibility of separating its APM and Mainframe operations into independent entities.
Although Compuware has an innovative product pipeline and its restructuring program is expected to boost profitability, the results will likely remain subdued due to a sluggish IT spending environment. Moreover, intensifying competition from the likes of Hewlett-Packard (HPQ) and Computer Sciences Corp. (CSC) may limit growth.
In such a scenario, we believe that Thoma Bravo’s buyout offer is significantly beneficial for shareholders. The deal is expected to close in early 2015.
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