A Manhattan-based hedge fund disclosed Wednesday that it has bought more than 5 percent of the shares of CA Technologies, for $563.5 million, and has been in talks with its management about the company’s strategy.
The stock market reacted quickly to the news, with 2.1 million shares changing hands in the first hour of trading Thursday, exceeding Wednesday's total volume of 1.9 million. News of the hedge fund’s activist stance buoyed CA shares, which closed at $20.94 Wednesday and rose in overnight trading to open at $21.95 Thursday.
The hedge fund, Taconic Capital, said it invested in 25.4 million shares of CA because it believes the shares are undervalued, and it outlined in broad terms the steps it thinks the Islandia software maker should take to increase shareholder value.
William Hughes, the company's chief communications officer, said CA can't comment in detail about the Taconic buy, because it is in a quiet period before its third-quarter results are announced.
"I can say that we respect and listen to the views of all of shareholders. And as we said during our earnings call in October, we believe that our strategic direction continues to be the right one and we are focused on making the right choices to maximize total share return over the long-term," Hughes said.
"As we also said, this is an ongoing process and one that we will update during our fiscal fourth quarter," Hughes said.
The disclosures came in a Securities and Exchange Commission filing signed by Taconic directors Kenneth D. Brody and Frank P. Brosens. They said the $563.5 million included brokerage commissions. Taconic said it has talked with CA’s management and board about “the company’s business strategy, operations, capital allocation and management compensation structure.”
The hedge fund also said in its SEC filing that it believes CA’s board “should implement a senior management compensation structure that is based primarily on total shareholder returns rather than the current structure’s emphasis on absolute growth metrics.”
CA should increase dividends, implement “an efficient capital structure” and increase profit margins in its Enterprise Solutions division, Taconic said.
Photo shows CA's chief executive, William E. McCracken.