(CPWR) Compuware’s Covisint Files S-1

As a part of Compuware’s (CPWR) earlier announced restructuring initiatives, the company’s fully owned subsidiary Covisint Corp recently filed an S-1 statement with the Securities and Exchange Commission (“SEC”).

Covisint proposes to issue shares of its common stock, which is expected to give the company greater flexibility in pursuing strategic growth opportunities going forward. Credit Suisse Group’s (CS) U.S. division, Credit Suisse Securities LLC will act as lead book-running manager, while Pacific Crest Securities LLC will act as joint book-running manager for the offering.

However, Covisint is yet to finalize the number of shares for the Initial Public Offering (“IPO”) and also the price range. Earlier, Compuware had announced that Covisint will offer approximately 20% of Class A stock in the IPO. Compuware is expected to distribute its remaining shares in Covisint Corp directly to shareholders after the completion of the proposed IPO.

In Jan 2013, Compuware rejected a $2.3 billion bid from activist investor Elliott Management, stating that the $11.00 per share offer was inadequate. Post Elliott, Compuware had reportedly solicited a number of other private equity funds such as Blackstone Group LP, TPG Capital LP and Golden Gate Capital for a possible buyout. However, to date nothing concrete has materialized from these discussions.

Covisint’s S-1 filing suggests that Compuware is steadily progressing with its restructuring initiatives that include steps to increase shareholder value and profitability through stringent cost control measures.

Compuware’s 3-year restructuring plan is expected to save approximately $60.0 million. For fiscal 2014, the plan is expected to save a minimum of $20 million. Compuware also announced that it will initiate a dividend payout of 50 cents per share beginning in the first quarter of fiscal 2014. On May 16, 2013, Compuware declared its first dividend of 12.5 cents to be paid on Jun 19, 2013.

Although a better buyout offer will be positive for investors, we believe that the prevailing sluggish macroeconomic conditions will likely act as an impediment toward fetching a higher price.

We believe that Compuware’s restructuring initiatives are positive for shareholders over the long term. The company’s strong product portfolio, new program wins and innovative product portfolio will help it to counter strong competition from the likes of CA Technologies (CA) and International Business Machines (IBM) going forward.

However, Compuware reported a tepid fourth quarter due to lower number of deals closed in the Application Performance Management (APM) and Mainframe businesses. Moreover, execution challenges (related to acquisition, geography and people) are possible headwinds going forward.

Currently, Compuware has a Zacks Rank #4 (Sell).
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