SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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COMPUTER ASSOCIATES INTERNATIONAL, INC.
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RANGER GOVERNANCE, LTD.
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EXPLANATORY NOTE
Ranger Governance, Ltd., a Texas limited partnership ("Ranger"), is filing
the materials contained in this Schedule 14A with the Securities and Exchange
Commission in connection with a solicitation of proxies (the "Solicitation") in
support of electing Ranger nominees to the board of directors of Computer
Associates International, Inc. ("Computer Associates") at the 2001 annual
meeting of stockholders of Computer Associates.
Table of Contents
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Content of article published in Upside, June 1996........ Item 1
Content of Item 1
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Selling Unicenter: Let's Wrap & Roll
Charles B. Wang takes great pride in Computer Associates International
Inc.'s technical expertise, but during its first 20 years in business, the
world's second-largest independent software company hadn't produced a best-
seller, at least not until it came out with Unicenter, its systems management
software. In 1995 the company reported $300 million in Unicenter sales, which
Wang predicts will double in 1996. Critics of the company, however, charge that
these figures are grossly inflated.
Unicenter was initially developed for the mainframe environment in the mid-
1980s, but it didn't begin to take off until 1993, when CA introduced a Unix
version of the product that allowed customers to manage all of their systems
acros s all hardware platforms and operating systems.
That same year, CA's senior management realized that the Unix version of
Unicenter could make the company a major player in the emerging client-server
computing market. "We are sponsoring a CIO conference at Pebble Beach then, and
I asked the CIOs what their top priority was," recalls CA President Sanjay Kumar
"One hundred of the 140 attendees answered that they needed to get centralized
control over decentralized resources. That hit home."
Recognizing that it might finally have a hit on its hands - one that, in
the Unix version, at least, had been developed entirely within CA - and eager to
expand into the fast-emerging distributed computing market. CA did everything in
its power to ensure Unicenter's success. As part of the settlement in 1994 of
the two-year dispute between CA and outsourcer Electronic Data Systems Corp.,
for example, CA stipulated that EDS serve as a CA's VAR and peddle $100 million
worth of Unicenter software through its channel. Wang told CA shareholders
shortly after the settlement that EDS would serve as a "super value-added
reseller" of CA's client-server solutions. In 1994, CA also signed an agreement
with Hewlett-Packard Co. to bundle the product on HP hardware. CA subsequently
entered into alliances with other vendors, including Sun Microsystems Inc.,
Netscape Communications Corp. and Microsoft Corp., combining Unicenter offerings
with products such as Microsoft's Windows NT and Sun's Solstice SunNet Manager.
CA's 1995 acquisition of Legent Corp. further fortified Unicenter, since a
number of Legent's products, including Agent Works, Paradigm and Open Storage
Management, were folded into Unicenter.
But the product's apparent success can also be attributed to the
aggressiveness with which CA's sales force has been "seeding" Unicenter for the
past few years. Seeding - that is, giving away a new product, or selling it at
huge discounts, to accelerate acceptance and create market share - is not unique
to CA. When Microsoft introduced Windows 95, for example, it gave the product to
select customers. Ca, however, takes this approach several steps further by
bundling Unicenter into packages that typically might include a relicensing
agreement or other CA products, then reporting the entire bundle as a Unicenter
sale, thereby inflating its sales figures.
This approach is not illegal, though it certainly stretches the envelope of
software accounting principles. Here's how it works. For some time the company's
sales force has practiced what several former CA sales executives call "wrap and
roll." "You wrap the customer
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in a long-term maintenance agreement and then roll between 25 to 35 percent of
that cash flow into new product revenue," explains one of these sources. The
entire amount of the sale is then booked as a new product sale.
A former Legent executive who has competed directly with CA details how CA
seeded Unicenter growth. "What CA has been doing is giving its customers, say, a
new five-year license for $50 million and then selling $10 million worth of
Unicenter as part of this deal," he claims. "This then goes on the books as a
$60 million Unicenter sale, which makes Unicenter look like the star product of
the universe."
It should be noted that Legent employed a similar practice, which it called
the Flex Plan, under which customers paid a 25 percent up-front premium to lock
in a three- to five-year maintenance agreement as a set rate. But in this case
there was no "roll" since no product was part of the transaction, so the company
wasn't reporting artificially high figures to Wall Street.
The tip-off that this bundling practice is widespread at CA, according to
some of the company's critics, comes in CA's maintenance fees. In fiscal 1995,
when CA reportedly sold $300 million worth of Unicenter and new product sales
shot up more than 30 percent over the previous year, maintenance fees increased
just 3 percent. The same pattern holds for fiscal 1996 Unicenter sales, which
Wang projects will reach $600 million, although maintenance fees have remained
flat.
What's wrong with this picture? Since maintenance fees typically are
factored as 12 to 15 percent of the price of a new product 118 percent with
Unicenter, they should increase in proportion to new product sales, CA's critics
say. CA claims these fees haven't gone up because of data-center consolidations,
which have measurably reduced the volume of products and generate maintenance
fees. Given that most of CA's maintenance fees are based on usage rather than
site licenses, however, the impact of consolidation would seem to be minimal.
Internally, at least, CA is quite open about its bundled approach to
selling Unicenter, which is priced at $400 per power unit. After the Legent
merger last summer, CA held a meeting July 8 in Chicago for several hundred
sales and account managers from both companies. One of the speakers was CA's
general manager of sales, Richard Chiarello. "After lunch, Chiarello was talking
to the salespeople about opportunities at CA," explains one of the senior-level
Legent people who was present. "He said that if we could get customers to commit
to $400,000 in maintenance over five years, $160,000 of that would be diverted
to Unicenter, and we'd get commission on the $160,000."
But after the Legent executive returned home, he learned of a December 1995
deal between CA and Kawneer Co. Inc., a __________, _____ based manufacturing
company, for a $1.2 million bundle of products that included HP's Open Systems,
Unicenter and some Legent software. The Legent executive asserts that the entire
package was booked as a $1.2 million Unicenter sale, a claim substantiated by an
IS executive from Kawneer.
As a result of these tactics, analysis such as Meta Group program director
Christian Byrnes question the accuracy of CA's Unicenter numbers. "They're
clearly exaggerated to the high end because of bundled sales, where they put a
lot of products together and stress the
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Unicenter part of it." Why would CA inflate Unicenter's sales figures? In
addition to pride of ownership and the company's strategy of repositioning
itself in the client-server market, large numbers of Unicenter sales play well
on Wall Street, which responds more favorably to new product sales than to
increasing revenues from maintenance contracts.
Wang responds to the criticism with characteristic bluntness: "I tell
them to get a life." Kumar is no less direct. "The advantage CA has is its big
customer base," he explains. "I want to leverage that any way I can. If I have
to seed the world with Unicenter, I will do that any day of the week."
Even CA's severest critics concede that although the sales numbers may be
exaggerated, the company's tactics, coupled with its alliance strategy, have
clearly paid off. CA's critical mass among corporate customers is now large
enough to ensure that Unicenter is the de facto standard for systems management,
far outselling competitive offerings from Tivoli Systems, Inc. and Platinum
Technology Inc. After 20 years, Charles Wang finally has a top-selling software
product. -L.M.
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IMPORTANT INFORMATION
On July 19, 2001, Ranger filed with the Commission a revised
preliminary proxy statement in connection with the election of the nominees of
Ranger (the "Ranger Nominees") to the Computer Associates board of directors at
the Computer Associates 2001 annual meeting of stockholders. Ranger will prepare
and file with the Commission a definitive proxy statement regarding the election
of the Ranger Nominees and may file other proxy solicitation material regarding
the election of the Ranger Nominees. Investors and security holders are urged to
read the definitive proxy statement and any other proxy material, when they
become available, because they will contain important information. The
definitive proxy statement will be sent to stockholders of Computer Associates
seeking their support of the election of the Ranger Nominees to the Computer
Associates board of directors. Investors and security holders may obtain a free
copy of the definitive proxy statement (when it is available) and other
documents filed by Ranger with the Commission at the Commission's website at
www.sec.gov. The definitive proxy statement (when it is available) and these
other documents may also be obtained for free by writing to Ranger at 300
Crescent Court, Suite 1000, Dallas, Texas 75201 or by contacting Morrow & Co.,
Inc. at 800-634-4458 or at www.rangergov.com.
Detailed information regarding the names, affiliations and interests of
individuals who may be deemed participants in the Solicitation is available in
the revised preliminary proxy statement filed by Ranger with the Commission on
Schedule 14A on July 19, 2001.