Activist investor group becomes No. 1 institutional holder of

Long Island Business News, Jan 27, 2006 by Ken Schachter

An investment advisor whose activist tactics caused a seismic shift at newspaper publisher Knight Ridder Inc. has become the No. 1 institutional holder of software maker CA Inc. with a stock position worth about $2.4 billion.The 86.5 million shares controlled by Private Capital Management, as of Sept.

30, make it the second largest shareholder in CA behind Swiss billionaire Walter Haefner and represents a 33 percent increase in dollar terms from the shares it owned in September 2004, according to Securities and Exchange Commission documents. Private Capital, based in Naples, Fla., controls 14.9 percent of CA, while Haefner owns 21.7 percent.What the beefed-up stake, the second largest in Private Capital's portfolio behind Alltel Corp., could mean for CA and its workers remains unclear.Chad Atkins, general counsel for Private Capital, declined to comment on the company's strategy. Private Capital manages separate accounts with a minimum size of $2.5 million. Unlike mutual funds, where advisors manage a pool of stocks for shareholders, individuals retain nominal ownership in separate accounts, but advisors like Private Capital have voting rights.For an activist shareholder, it typically means taking an activist stance, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. It can take a lot of forms: suggestions to management, board candidates. Shareholders are much more active than they used to be in seeking management to take alternative directions.Aside from injecting itself into executive strategy, Private Capital is known for its independence from Wall Street.I don't think they deal with the brokerage part of Wall Street too much, said Richard Petersen, an analyst at Pacific Crest Securities. They do a lot of their own research. Their stated strategy is to ignore sell-side research.In an interview with MoneyManagerReview.com, Bruce Sherman, chief executive of Private Capital, called most Wall Street research short- term oriented and superficial. The company evaluates an investment as if it planned to buy the business with a focus on the company's ability to generate cash, Sherman said.In November, however, Private Capital made headlines when Sherman stepped beyond the bounds of passive investor and wrote a letter to the board of Knight Ridder citing its lagging stock price and demanding that the company be put on the block.Management at Knight Ridder, publisher of The Philadelphia Inquirer and The Miami Herald, bowed to the pressure and has initiated negotiations with several private-equity groups and rival newspaper publishers. The Wall Street Journal reported that Knight Ridder executives have outlined a program that would cut jobs and benefits to improve the newspapers' profitability.Executives at CA, which reported third-quarter earnings after the market close Tuesday, were unavailable for comment.The software company is in the midst of its own cost- cutting effort as it trims 10 percent of its jobs worldwide and closes as many as three-quarters of CA's 100 software development centers.As some analysts, including Petersen, expected, CA forecast for fourth-quarter revenue was on the low side of Wall Street expectations. The company predicts revenue of $975 million to $1 billion, on the low end of the $1 billion average forecast of analysts polled by Reuters.The day after the earnings announcement, CA's stock was trading at $28.28, within its 52-week range of $26.04 to $29.71.Private Capital, which was acquired in August 2001 by investment firm Legg Mason, also has a major stake in another Long Island company, Gyrodyne Co. of America, where its 74,435 shares reported as of Sept. 30 make it the largest institutional holder. Gyrodyne, which is pressing a court case to gain more compensation from Stony Brook University for 214 acres seized through eminent domain, has come under pressure from some institutional shareholders to seek a sale. In response, the company has said it plans to convert to a real estate investment trust and entertain potential buyers in an effort to trigger a liquidity event for shareholders.Ken Schachter is a freelance writer.