In yet another twist to the struggle for control over Computer Sciences Corp., Computer Associates has been hit with a lawsuit seeking class-action status and claiming that in an effort to prop up its stock prices, CA deliberately misled investors about its intentions to make a major acquisition.
The lawsuit was filed in the US District Court for the Eastern District of New York on behalf of purchasers of the company's common stock from Jan. 27 to Feb. 11. The complaint charges that during that period, CA misled analysts and investors by stating that CA planned no significant business acquisitions, according to attorney Jeffrey Klafter. Klafter is a partner in the New York-based law firm of Bernstein Litowitz Berger & Grossmann LLP, which filed the lawsuit on behalf of CA shareholder Robert Luff.
If the lawsuit is granted class-action status, thousands of potential shareholders may be represented in the action, according to Klafter.
"About 20 million shares traded hands during the period [Jan. 27 - Feb. 11]," said Klafter. Anyone who traded those shares could potentially join the suit, he said.
On Jan. 27 CA executives met with analysts at the Cowen & Co. investment banking firm in New York and talked about acquisition strategy without mentioning the acquisition talks with CSC, according to Klafter. At that time, Klafter noted, CA had already started talking to CSC about an acquisition, as CA itself admitted later. After the meeting at Cowen, CA had several other analyst briefings without mentioning the CSC talks, Klafter said.
Under securities law, company executives are under obligation to reveal plans for major acquisitions, once they choose to talk about acquisition strategy, according to Klafter.
"You can choose to abstain from talking about acquisitions, but if you do choose to talk about acquisition strategy, you are under obligation to reveal negotiations that are under way," Klafter said.
In addition, CA executives, including CEO and Chairman Charles Wang, sold stock during the period in which they were talking to CSC about the acquisitions, Klafter said. Under securities law, company officials are obligated to reveal acquisition plans if or when they sell stock, if they have inside knowledge about investments that other investors do not have, Klafter said.
CA officials declined to comment immediately, since they had not yet seen a copy of the lawsuit, and found out about the lawsuits through press reports, said a CA spokesman.
Computer Associates shares dropped almost 8 points to US$50-3/4 on Feb. 11, when it revealed its offer to buy CSC for $108 a share. Today, CA closed down 5/8 to 46-5/8.
CA, based in Islandia, New York, can be reached at +1-516-342-5224 or at http://www.cai.com/.