Under terms of the deal, Islandia, New York-based CA will pay $21 per share for Niku, which represents a premium of 27% over Niku’s Tuesday closing price. This translates to a purchase price of $350m in cash, which CA will fund from its exiting cash pile.
Niku shares climbed 25%, or $4.14, to $20.64 as of 3.30pm BST on the Nasdaq Stock Market on Wednesday. CA shares meanwhile edged up $0.01 to $27.01 on the New York Stock Exchange.
During a conference call with analysts, CA said the acquisition would give it a foothold in the fast-growing market for IT governance, which the company said is expanding faster than the overall software industry.
The two companies had already formed a joint marketing agreement towards the end of January, when CA agreed to resell Niku’s Clarity IT project management software. At that time, CA said it had entered the deal as it saw a need to round out its own portfolio of systems, service, and lifecycle management software with capabilities in IT governance.
Clarity is said to give executives a view into an organization’s IT investments, initiatives and resources, from investment selection through project execution and results assessment. This type of software is thought to be in great demand at the moment as companies try to do more with the software they already own.
Commenting on the acquisition, CA’s President and CEO John Swainson said that Niku would benefit from the size of CA, as well as its indirect distribution channels, and its relationships with systems integrators and third parties.
Looking forward, Swainson said Computer Associates would remain on the lookout for suitable acquisition targets, but said stressed that his short-term goal was the integration of the two operations.
CA said it expects most of Niku’s 290 employees would remain with the company after the acquisition was completed in three months time, subject to the usual regulatory and shareholder approvals.
Niku’s CEO Joshua Pickus will join Computer Associates as senior vice president of Business Service Optimization (BSO), the unit that will integrate Niku’s software products.
The BSO unit was created in April as CA restructured its software portfolio, and signaled a new focus for CA, designed to leverage the company’s existing lifecycle and systems management products to target BSO via business process modeling, IT governance, IT service management, and enterprise change management.
During the conference call, Pickus made much of the size of CA, saying it would allow Niku to compete more effectively against fellow competitors including Mercury Interactive, IBM and Compuware. The merger could especially pose problems for Mercury, which has one of the most comprehensive offerings in the industry and will now have to contend with a company the size of CA.
Redwood City, California-based Niku has been profitable for 11 consecutive quarters, and for fiscal 2005 it posted net income of $4m on sales up 45% at $66.3m. In the next 12 months, CA expects Niku-related sales to be in the region of $95m. It said the acquisition would slightly reduce earnings in fiscal 2006, but add to earnings in fiscal 2007.
It has been a torrid few years for Computer Associates, which has been plagued by a number of accounting scandals and executive sackings. The company admitted that its employees cooked the books in its fiscal 2000 by keeping sales accounts open after legal reporting periods had ended. The practice, known as the 35-day month, led to $2.2bn being incorrectly accounted for.
Former CEO Sanjay Kumar is currently facing charges of conspiracy to commit securities fraud and obstruction of justice, and could be sentenced to up to 100 years in jail if convicted on all counts.
At the end of May, CA once again announced it would have to revise its revenue and income statements for the last four years, after uncovering yet more questionable contracts during a period when its senior executives are suspected to have been cooking the books.
CA has approximately 15,300 employees, and recorded earnings of $25m on sales of $3.28bn in fiscal 2004.
Niku is the latest in a series of acquisitions the company has made in the last 12 months after a return to acquisition activity. In March 2004 it announced plans to buy PC migration software specialist Miramar Systems, having gone almost two years without making a major acquisition.
That was followed by the purchase of anti-spyware software start-up PestPatrol in August 2004, identity management software vendor Netegrity in October 2004 for $430m in cash, and most recently network management vendor Concord Communications for $330m in April.
