Founded in 1973, Compuware’s management has been trying for years to offset the gradual decline of its highly profitable mainframe sector by investing in growth areas such as cloud computing and programs that monitor business applications.
There are signs of success, as mainframe business accounted for 35% of the firm’s revenue last fiscal year compared with 51% in 2010, according to corporate filings.
But Compuware’s new growth businesses do not have as high a profit margin as its older mainframe business.
Compuware has been sharing confidential business information with it spurned suitor, Elliot Management.
Neither party will comment but the arrangement may have helped the hedge fund decide whether to shepherd a deal for Compuware’s purchase by another entity with deep pockets, such as a private equity firm.
Compuware’s board purportedly lost interest earlier this year in a potential merger or acquisition deal involving a larger software firm in Houston called BMC Software that has since been sold to private equity firms Bain Capital and Golden Gate Capital. Elliott Management was a major shareholder in BMC and agitated for the $6.9-billion buyout.
There is speculation among some tech firm analysts that such a deal to combine Compuware with BMC could still be on the table if the private equity firms can offer a price to please Compuware’s board. If such an arrangement happens, many Detroit jobs could be at risk of elimination or relocation to Texas.
A report last month in the Financial Times described how at least two other private equity firms have been circling Compuware and might have a deal by early January.