In a major corporate realignment, Computer Associates International Inc. recently announced that founder Charles Wang is giving up his CEO job and that the vendor plans to spin off some of its software and services businesses.
The first unit that’s being spun off provides infrastructure technologies for application service providers, CA said. The Islandia, N.Y.-based company added it also plans to sell off its Accpac desktop accounting software division and unspecified other business units in the future.
Meanwhile, CA gave the CEO job to Sanjay Kumar, who has been its president and chief operating officer. Long-time CEO Wang will continue as chairman and focus on new ventures. In a statement, Wang said the change “marks the logical transition from the founder phase of CA to the next level of corporate activity, which is more focused on enhancing shareholder value.”
The announcements follow last month’s report of a 69 per cent plunge in operating profits for CA’s first fiscal quarter. CA, which blamed the drop-off on delayed software contracts for mainframe computers and weak European sales, said it now plans to concentrate on three core businesses: security and storage management, enterprise management, and application development combined with business intelligence.
The spin-off, which is aimed at application service providers, will be called iCan-ASP Inc. and will be headed by Nancy Li, previously CA’s chief technology officer. CA said it has hired investment banking firms Credit Suisse First Boston and Morgan Stanley Dean Witter to help with the spin-off.
Financial analysts who follow CA said they weren’t surprised by Kumar’s rise to CEO, but they added that the less-than-stellar earnings in the first quarter led the company to take action on a restructuring in an attempt to improve its financial results.
“I don’t think there will be a lot of change on a day-to-day management basis, because it looks like [Kumar] was running the company anyway,” said Jonathan Rudy, an analyst at S&P Equity Group in New York. “But the disappointing first quarter has forced them to do something.”
However, Rudy noted that CA executives said earlier Monday that the iCan-ASP spin-off won’t have any impact on the company’s second-quarter results. And because CA didn’t release any specific pricing information for the spin-off, the long-term impact is also hard to assess, he said.
“The Kumar announcement was expected,” said Charles Phillips, an analyst at Morgan Stanley in New York. “He’s been in line for this for years. So not much will change [from a management perspective].” By spinning off some of its businesses, Phillips added, CA is trying to maximize the value of its stock. “If they can’t do it one way, they’ll do it another.”
