At the end of 2012, Elliott Management Corp offered to acquire at around $11 per share, with a total transaction value of $2.3 billion. However, Compuware Corporation (NASDAQ:CPWR) has rejected Elliott’s bid, as it thought that the offer was too low and not in the shareholders’ best interest. In addition, Compuware Corporation mentioned it was looking for a better offer from different buyout firms. Let’s look closely into the company to determine the intrinsic value range for Compuware.
Compuware, founded in 1973, is the provider of software solutions, professional services and application services, with six main business segments: Application Performance Management (APM), Mainframe, Changepoint, Uniface, Professional Services and Covisint Application Services. The majority of its revenue, $419.3 million, or 41.6% of the total revenue, was generated from the Mainframe segment. The second biggest segment was APM, with $270.4 million in revenue in 2012. The Professional Services ranked third, contributing more than $151.5 million in revenue. Compuware seems to have a diverse customer base, as it hasn’t had a single customer that accounted for more than 10% of the total revenue in the past 3 years.
Historical Fluctuating Performance
In the past 10 years, its revenue, EPS, and cash flow have been fluctuating. The revenue has decreased from $1.37 billion in 2003 to $1 billion in 2012, and the net income experienced a decline from $103 million to only $88.4 million in the same period. However, EPS has been rising, from $0.27 to $0.40 in the past 10 years. The rise in EPS was due to the significant and continuous reduction in the number of total shares standing. In 2003, Compuware had 382 million outstanding shares. In 2012, the number of shares outstanding has been shrinking to only 220 million. Compuware operates with a quite strong and conservative balance sheet. As of December 2012, it had $1 billion in total stockholders’ equity, $65 million in cash and $70 million in long-term debt. As the company has been growing via acquisitions, it recorded a huge amount of goodwill and intangibles: $920 million in December 2012. Thus, the tangible book value was quite low, at only $0.62 per share.