How Much is Compuware Corporation (CPWR) Worth?

An $11 Offer is not Enough?

Elliott Management is one of Compuware’s largest shareholders, with around 8% stake in the company. In the letter to Compuware’s board of directors, it mentioned although Elliott believed in the quality of the company’s assets, the company’s profitability, executive and growth have significantly underperformed. Elliott stated that Compuware’s stock has underperformed the Nasdaq and S&P 500 by 16 and 34 percentage points, respectively, in the past 1-2 years. Thus, it offered to buy Compuware at around $11 per share. Robert Paul, Compuware’s CEO, said that an $11 offer “does not take into account our progress returning the business to profitable growth and our future prospects.” The company would continue with its 3-part plan. First was a 3 year cost reduction program that should cut expenses by at least $60 million. In the full year 2014, the program intends to save at least $20 million. Second was to sell 20% of Covisint in the form of an IPO, and the remainder would be distributors to Compuware’s shareholders. Last but not least, it would pay investors a dividend yield of more than 4.5%.

Peer Comparison

At the current price of $11.84 per share, the total market cap is $2.5 billion. The market is valuing Compuware at 15.35x EV/EBITDA. Compared to its bigger peers, including BMC Software, Inc. (NASDAQ:BMC) and CA Technologies, Compuware seems to be the most expensive company. CA Technologies is the biggest company among the three with a $11.2 billion market cap. With a trading price of $24.56 per share, CA Technologies is valued at only nearly 6x EV/EBITDA. BMC, with a trading price of $40.54 per share, is worth $5.8 billion on the market. The market is valuing BMC at nearly 9.8x EV/EBITDA. Interestingly, CA Technologies generated the highest operating margin at 30%, while the operating margins of Compuware and BMC were 12% and 21%, respectively.

Foolish Bottom Line

Among the three, CA Technologies seems to be a better bet than both BMC and Compuware due to its lowest valuation and highest operating margin. A $2.3 billion offer would value Compuware at as high as 14x EV/EBITDA. With a high EV multiple, I would not touch Compuware at its current price.

The article How Much is Compuware Corporation (CPWR) Worth? originally appeared on Fool.com and is written by Anh Hoang.

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