Taconic hedge fund presses CA on shares

Activist Manhattan hedge fund Taconic Capital Advisors is urging one of Long Island's largest public companies, the business software maker CA Technologies, to get its act together.

In a regulatory document filed late Wednesday, Taconic said the Islandia firm should move quickly to expand profit margins and distribute spare cash to shareholders. Taconic said it has discussed strategy with company management and will continue those talks.

Shares of CA, which have fallen 13 percent in the last year, rose 4.2 percent Thursday in heavy trading, to $21.82, on Taconic's disclosure.

Analysts said Taconic is pushing back against recent acquisitions by CA, arguing instead for increased stock buybacks or higher dividends.

CA spokesman Bill Hughes said, "We are focused on making the right choices to maximize total share return over the long term."

Taconic holds a 5.1 percent stake in CA, for which it paid $563.5 million, according to the filing. The hedge fund believes CA's shares are undervalued, it said.

On Sept. 30 Taconic's largest holding, according to a filing, was Cephalon Inc., a Philadelphia-area pharmaceutical maker that was subsequently acquired by a larger company.

Jefferies & Co. analyst Aaron Schwartz said investors hope CA management will heed Taconic's advice rather than pursue more acquisitions that, he said, add little immediate value.

In August, for example, CA paid $317 million for Interactive TKO Inc., a Texas cloud-computing firm with $39 million in annual revenue. Schwartz said CA has focused about half its free cash flow in the last two years on acquisitions.

"For a shareholder, the return on that [investment] really hasn't been seen," he said.

In a note to clients Thursday, Sanford Bernstein analyst Mark Moerdler wrote that CA has spent just 20 percent of its free cash flow on stock buybacks, which seek to boost share prices. Moerdler said he viewed Taconic's "activist investment as positive."

CA employs about 1,600 people in Islandia.

With Joseph Mallia