Bloomberg News

BMC Adopts Takeover Defenses After Elliott Gains 5% Stake

May 14, 2012

BMC Software Inc. (BMC:US), a maker of software to manage corporate computer networks, surged the most in more than three years after saying Elliott Associates LP would seek five board seats and push for a sale.

The shares rose 8.7 percent to $43.92 at the close in New York, for the biggest gain since Oct. 28, 2008. The stock (BMC:US) had climbed 23 percent this year before today.

Takeover offers might come from a private-equity firm or from strategic buyers such as Cisco Systems Inc., Dell Inc., Hewlett-Packard Co., Oracle Corp., and International Business Machines Corp., said Matthew Hedberg, an analyst at RBC Capital Markets LLC in Minneapolis. BMC could sell for about $60 a share, he said in a research note today.

“We don’t believe management is necessarily opposed to selling at the right price, but view the involvement of an activist shareholder as more along the lines of short-term trade versus ultimately maximizing the long-term value of the company,” said Hedberg, who recommends buying shares and has a $47 target price on the stock.

Elliott has amassed more than a 5 percent stake in the company, Houston-based BMC said in a statement today. As a takeover defense, BMC is issuing one preferred stock purchase right for each common share outstanding as of May 24. The rights generally will only become exercisable if a person or group acquires at least 10 percent of the company’s stock in a transaction not approved by the board.

‘Always Open’

“We are always open to any alternative that fully reflects the value and prospects of the company,” Bob Beauchamp, BMC’s chairman and chief executive officer, said in a statement. “We do not believe the Elliott proposal is in the best interests of our stockholders.”

Rather than an outright sale, the company might seek buyers for its server and mainframe management units, which could be attractive to private-equity buyers, said Walter Pritchard, an analyst at Citigroup Inc., in a report today. If Elliott gains board seats, BMC might also consider a stock buyback or a dividend increase, he said.

“A simple sale of the company even with push by outsider such as Elliott is unlikely,” said Pritchard, who has a $36 target price and a neutral rating on the shares.

Hewlett-Packard spokesman Michael Thacker said he couldn’t comment on speculation. IBM spokesman Michael Fay declined to comment on “rumor or speculation.” Dell spokesman David Frink, Oracle spokeswoman Deborah Hellinger, and Cisco spokeswoman Karen Tillman declined to comment.

Morgan Stanley is serving as BMC’s financial adviser, and Wachtell, Lipton, Rosen & Katz is providing legal advice.

-- With reporting by Nick Turner in New York. Editors: Lisa Rapaport, James Callan

To contact the reporters on this story: Lisa Rapaport in New York at lrapaport1@bloomberg.net Aaron Ricadela in San Francisco at aricadela@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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