NEW YORK | Wed Nov 23, 2011 8:28pm EST
(Reuters) – Comverse Technology Inc (CMVT.O), a software developer that became a poster child for a major stock options backdating scandal, has been approached by bidders interested in its core division, sources close to the matter said.
Comverse Technology has been sharing financial information with prospective parties, including large global technology companies, for its telecommunications billing software unit, Comverse Network Systems, the sources said.
The interest in Comverse Technology’s unit comes as the company finally emerges from the aftermath of the long-running scandal, relisting onNasdaq two months ago.
Former Chief Executive and founder Jacob “Kobi” Alexander fled to Namibia in 2006 to escape federal charges related to the scandal. He has fought extradition to the United States since, at one time pledging to invest millions of dollars in Namibia and making political connections there.
More than 200 companies were caught in an options backdating scandal that broke a few years ago.
In December 2009, Comverse Technology settled a class action lawsuit related to the scandal for $225 million, with Alexander contributing $60 million.
Comverse Technology became compliant with its regulatory filings only in September this year.
The CNS unit posted $182 million in revenue, accounting for nearly half of Comverse Technology’s overall revenues for the quarter ending July 31. Comverse Technology has a market capitalization of about $1.3 billion. The company’s shares rose 1.5 percent on Wednesday to close at $6.60.
Hedge fund Cadian Capital Management LLC, which holds 4.18 percent in Comverse Technology and recently ran a proxy fight at the company, said in a regulatory filing last month that the unit alone could be worth more than $2 billion.
Cadian drew that conclusion based on the revenue multiple paid by private equity firm Permira for Alcatel-Lucent SA’s (ALUA.PA) global telecommunications business last month. Permira paid $1.5 billion for the business.
Goldman Sachs Group Inc (GS.N), which has been working with New York-based Comverse Technology for the last two years, is advising it on strategic alternatives, including any bidding interest. Investment bank Rothschild ROT.UL is advising the board, these sources said.
Representatives for Comverse Technology, Goldman Sachs and Rothschild declined to comment.
This would mark the third attempt since 2006 that Comverse Technology has tried to sell itself or its assets, the sources said.
In its last attempt in 2010, Comverse drew interest from Oracle Corp (ORCL.O) and Israeli competitor Amdocs Ltd (DOX.N), sources told Reuters at the time.
But a deal did not happen in part because Comverse was not current on its financial statements.
Amdocs declined to comment, while Oracle was not available for comment.
CROWN JEWEL
Comverse Technology said in September it would look to unwind its holding company structure, which also includes its 54.5 percent stake in security intelligence software maker Verint Systems Inc (VRNT.O) and 66.5 percent ownership in cellular software company Starhome.
The board is looking for tax-efficient ways to spin off Verint, creating a holding company that would have certain liabilities and cash, but no operations, a source said.
Comverse Technology would continue to own a majority stake in Verint under this structure, the source said.
This would then give Verint the option of purchasing the holding company and “collapse it” through a reverse merger.
“It could be a relatively tax-efficient way for Verint to be liberated, free to do what it needs to do to grow its business and shareholder value,” the source said.
Comverse shareholders have eagerly awaited the spin-off or sale of Verint, which is considered Comverse Technology’s “crown jewel,” two shareholders who requested anonymity told Reuters.
“Our preference is that they use that controlling position to engineer a strategic transaction with someone and even a financial transaction,” one shareholder said.
These shareholders said they believe one of the best combinations for Verint would be merging it with Israeli-based peer Nice Systems Ltd (NICE.TA), creating a more significant competitor against companies such as IBM Corp (IBM.N).
However, Nice would have to be willing to take on Verint’s significant debt, which was $591 million as of July 31.
“A Nice merger is the best way to get value for the shareholders of Verint,” a shareholder said. “But I don’t know if the Comverse board sees it that way.”
Nice Systems declined to comment. Verint was not immediately available for comment.
DISSIDENCE
In October, New York-based Cadian launched a proxy contest recommending that shareholders vote against three of the company’s directors.
Cadian and proxy advisers Institutional Shareholder Services and Glass Lewis & Co said at the time that Comverse Technology had not managed the restatement process well and so the board needed to be held accountable.
“The duration and expense of the accounting restatement begs the question Cadian has raised about the board’s sense of urgency throughout the process,” ISS said at the time.
Cadian, run by Eric Bannasch, won the campaign on November 16, with the removal of two directors, Raz Alon and Joseph O’Donnell.
Two other directors — Alex Porter and Richard Nottenburg — did not stand for reelection, reducing the board from 10 directors to six.
“There was an assumption made that Alex and Rich were frustrated that the board was not moving in ways that they thought they should be moving,” said one of the sources.
The next board meeting is expected to be held in May, giving shareholders several months to examine whether the current board can create value for the company.
“In a relatively short period of time. The pressure is on the board to deliver,” one shareholder added.
(Reporting by Nadia Damouni; editing by Paritosh Bansal, Bernard Orr, Andre Grenon, and Bob Burgdorfer)
Jacqueline Tongko 