Relational to press for change at CA

Thu Mar 16, 2006 3:46 PM ET

By Dan Wilchins

NEW YORK (Reuters) - Activist investor Relational Investors Llc plans to press business software maker CA Inc.<CA.N> to speed the progress of its turnaround, Relational Principal Ralph Whitworth said on Thursday.

Whitworth said the company's shares may be undervalued by 30 percent, and he wants CA to disclose more about its strategy for spending its cash flow and financing itself.

"We've been patient, but we're disappointed with Relational's progress," Whitworth said at the Reuters Banking Summit in New York. The $6.5 billion fund owns 4.5 percent of CA.

CA's shares rose as much as 1.6 percent after the news, and options volume increased as investors prepared for greater uncertainty in the company's share price.

It may make sense for the company to take advantage of its solid cash flow and borrow more, but Whitworth said he wants the company to explain its strategy.

Whitworth, who has been vocal in opposing Sovereign Bancorp's <SOV.N> recent efforts to sell a stake of itself to Spain's Banco Santander Central Hispano, declined to say how specifically he will agitate for change at CA.

"I'm going to leave that for people to wonder about," Whitworth said.

A CA spokesman declined to comment.

Islandia, New York-based CA launched a turnaround effort in November 2004, after falling software prices and an accounting scandal helped push the company's share price down some 75 percent from its peak in 2000.

CA's biggest profit generator is software for large mainframe computers, which is seen by some as a dying business as companies move away from that technology.

CA may be in a similar place to where Eastman Kodak Co. was several years ago, when it began investing in digital photography technologies to replace film technology, Whitworth said.

Kodak's digital investments have not generated the returns that investors had hoped.

"We don't want to see what happened to Kodak happen to CA," Whitworth said.

It's not clear that the mainframe business is dying, Whitworth added.

"Reports of the death of that business are exaggerated," he said.

CA's shares, which traded at around $27.08 before news of Whitworth's plans, rose 1 percent to $27.49 in late afternoon trading.

In the options market, some 5,800 CA contracts traded on Thursday, or seven times the average volume.