BEA Systems: Ripe for Activist Picking

According to the Barron's Tech Trader Blog, in her upgrade of BEA Systems (BEAS) to Buy today, UBS analyst Heather Bellini said the company, "could be ripe for shareholders activism (as was Siebel) and even M&A/LBO activity."

Looking through the list of holders, we see no "usual suspects" of the activist-persuasion holding a large stake in BEAS.

Recently, mega-hedge fund SAC Capital, which has been involved in a few activist situations, raised its stake in BEAS from 1.1 million to 1.75 million shares (less than 0.5%). Even with its recent tag-team move to overthrow the Take-Two Interactive (TTWO) board of directors, most will not consider SAC an activist fund since a majority of their stocks they hold passively. Interestingly, D.E. Shaw, one of the firms SAC is grouping with to attack TTWO, is a 1% holder of BEAS. But D.E. Shaw has been heavily cutting their stake in TTWO recently, which would make the odds of another tag-team low.

We've seen an increasing trend were mutual funds, which normaly treat their investments passively, are stepping up to put pressure on companies. T.Rowe Price is one that has made headlines lately, opposing Diversa's (DVSA) merger with Celunol and opposing the takeover of Laureate Education (LAUR). Could this be the case for BEAS?

According to the latest data, Fidelity owns a 10.5% stake in BEAS, but has been cutting its stake; Private Capital Management owns a 6.7% stake, but it too has been cutting its stake; Warburg Pincus owns 6.4%, but was one of the original investors in BEAS; Amvescap owns 5.6%; Friess Associates owns 4.8%; and Calamos Advisors owns 3.9%.

We don't see the activist situation that the UBS analyst mentioned today developing in BEAS any time soon, but with the wealth of hedge fund money today there could be "usual suspects" building massive stakes in BEAS as we speak.

Comments

[Philip Obal]

I love technology stocks because I have been involved in software development for 20+ years.

BEAS is a kinda maybe becareful stock. Most software companies that are worth their weight have zero percent long-term debt. NOT the case with BEAS. How come? That makes me cautious before investing - wondering why the debt load - what caused it. When a company has low or zero debt - they can run through the 'tough periods' without much issue. But when they have debt and a tough period (remember what Sept 11th did to technology companies? in Oct Nov Dec and 2002 it was tough - people just put their buying plans on hold - even 2003 was slow) - then it's much tougher to grow and survive.

I will analyze BEAS some more, but need to see some significant insider buying, reduction of debt, and high growth. Waiting on those things....

2007 Mar 20 08:38 PM