Is the Compuware Buyout Price Worth It?

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Compuware Corporation (NASDAQ: CPWR) saw its share price soar on Tuesday upon the announcement that it was being acquired in a deal to go private. Thoma Bravo LLC will be the investment firm buying the shares for $2.5 billion, at a price of $10.92 per share.

The $10.92 per share has a tie to Covisint Corp. (NASDAQ: COVS), pending shareholder approval. Under the terms of the agreement, Compuware shareholders will receive an aggregate value of approximately $10.92 per share. This represents a premium of approximately 17% to the company’s stock price as of the close of trading on Friday, August 29, 2014.

The formal terms of this buyout were listed as follows:

Thoma Bravo will pay a cash purchase price of $10.43 for each outstanding share of Compuware common stock, less the pro rata portion of the applicable corporate tax that will be owed in connection with the spin-off of Covisint, currently estimated at $0.18 per share based on the current market price of Covisint, for a net cash payment of approximately $10.25 per share.

Compuware had previously received an offer back in December of 2012 to buy it out from activist hedge fund Elliot Management. The offer was for $11 –more than what is being offered now– but the company ultimately rejected it.

Recent events have likely shaped the decline in Compuware that played a role in influencing its agreement to sell. Peter Karmanos, a co-founder, had previously stepped down as the as the executive chairman of the board. Weak IT spending coupled with a slowdown in orders has further pushed some investors to call for the company to be sold or at least restructured.

Historically this stock has been as high as almost $80 before the 2000 bubble hit and had fallen into the $3 to $15 range in recent years. A snapshot of the more recent trends is the current 52-week range at $8.94 to $11.39.

So what should the Compuware buyout price be valued at? That depends upon whom you ask. The consensus price target from Thomson Reuters is $11.37, but that is from a very small number of analysts.

Tuesday Compuware shares had an unofficial closing price of $10.59, up over 13.3% from the previous close of $9.35. Many investors appear to be speculating on this deal because the trading volume was almost 62 million shares shortly before the close of trading. Its average volume was roughly 1.8 million shares per day.