Activist fund Starboard, a ~5% shareholder in Compuware (CPWR +2.7%), has written a letter to the company's board prodding it to consider strategic alternatives. Starboard believes Compuware is "extremely undervalued relative to the quality of its businesses and the potential cash flow that the Company could generate after restructuring its expenses."
The fund outlines a number of proposals that would reward long-term shareholders, including a $450M share repurchase program (which would decrease shares outstanding by ~19%), divestment of non-core assets like Changepoint and Uniface to fund further buybacks, a distribution of Compuware's 80% stake in Covisint (COVS), and a dividend hike to $0.60/share.
On the operating side, Starboard calls Compuware's margins "unacceptable," noting that bloated G&A expenses (16% of sales) have resulted in EBITDA margins that "are significantly lower than its peers." Starboard believes Compuware could reach EBITDA margins of 35% by adding $50M-$70M in cost reductions on top of its current $80M-$100M target.
Finally, Starboard questions Compuware's board composition and its ability to execute a successful restructuring, writing, "only one of the Board's eleven members was an independent director with relevant software industry experience ... the average tenure of the other Board members is over 10 years."