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Lucian Bebchuk |
Harvard law professor Lucian Bebchuk is challenging CA in the Delaware
Court of Chancery after the company attempted to dismiss a bylaw amendment
he proposed to amend its anti-takeover provisions. Bebchuk, who owns 140
shares of CA stock, wants this proposal to come up for a shareholder vote
at the company's annual meeting in August. But CA has said it should be
excluded from the proxy because it is illegal.
"We have only recently received Mr. Bebchuk's lawsuit and have no
comment on it," CA said in a statement. "As stated in our letter to the
SEC dated April 21, 2006, we believe that the proposed by-law amendment
would violate Delaware law."
Bebchuk's proposal would require a unanimous vote of the company's
board of directors to adopt or extend any poison pill. Currently, CA needs
only a majority of its 12-member board to pass a shareholder rights plan.
Bebchuk also proposed to change the company bylaws to state that a poison
pill should be reviewed every year. It also would require any extensions
of more than one year to garner shareholder approval.
"I believe that poison pills adopted by the board of directors without
ratification by stockholders can deny stockholders the ability to make
their own decisions whether or not to accept a premium acquisition offer
for their stock," Bebchuk said in his complaint.
Michael Barry, a partner at law firm Grant & Eisenhofer PA who
is representing Bebchuk, said the professor's proposal is an appropriate
way to put some power back in the hands of shareholders.
"For years, corporate lawyers who dominate the corporate board have
expressed what we considered false consensus that directors somehow have
the unfettered right to manage the affairs of the corporation as they see
fit," he said. "When in truth, the directors' managerial discretion can be
restricted by the company's bylaws."
Gary Lutin, an investment banker at Lutin & Co. and manager of
an investor-sponsored, online public stockholder forum, said shareholders
have the right to amend the bylaws.
"The thing that I think needs to be emphasized is it's the
shareholders' rights to make this decision and management has no business
trying to prevent them from exercising that right," he said. Bebchuk's
lawsuit represents another potential blow against CA, which has been
trying to put years of corporate governance and financial mismanagement
issues behind it.
Recently the Amalgamated Bank's LongView Collective Investment
Fund filed a resolution against CA, seeking to oust two directors, former
U.S. Sen. Alfonse D'Amato and Hyperion Partners LP founder Lewis
Ranieri, who were on the company's board when federal regulators started
probing the company's accounting practices several years ago. CA has asked
the U.S. Securities and Exchange Commission for permission to block the
directors' removal.
Meanwhile, chief operating officer Jeff Clarke abruptly left CA in
April to run a division of Cendant Corp., and executive vice
president and chief technology officer Mark Barrenechea has announced his
upcoming resignation. Barrenechea will join private equity firm Garnett
& Helfrich Capital as a director.
In late April, former company CEO Sanjay Kumar and Stephen Richards,
CA's top salesman, pleaded guilty to eight counts of securities fraud and
obstruction of justice in Federal District Court in Brooklyn.
"The recent reports of executive departures and the confusion of
accounting for sales commissions raise very serious questions about
whether management has got things under control," Lutin says. "And more
questions are raised, especially in this context, by management's refusing
to provide information and trying to prevent shareholders from exercising
their rights to vote."
Islandia, N.Y.-based CA also slashed its fourth-quarter profit
forecast, saying its revenue guidance will miss its initial expectations.
Total revenue for the March quarter will range from $940 million to $950
million, compared with CA's earlier guidance of $975 million to $1
billion. CA attributed the revenue shortfall to the speed of the
accounting transition of revenue from recent acquisitions.
The software giant acquired Cybermation Inc., a Markham, Ontario-based
provider of job-scheduling software, for $75 million in cash in April. In
January, CA bought Control-F1 Corp., a privately held Calgary,
Alberta-based developer of automated technology management software, for
an undisclosed sum and Wily Technology Inc., a Brisbane, Calif.,
application software maker, for $375 million in cash.