Encouraged by EMC Corp.'s successful public offering of stock in its VMware Inc. subsidiary, a Wall Street hedge fund that controls the second-largest block of Sybase Inc.'s shares is pressuring that company to take the same approach with its mobile and wireless software unit.
An initial public offering and eventual spin-off of Sybase's mobility group is one of three possible actions being requested by Sandell Asset Management Corp. in hopes of increasing the value of the software vendor's stock. In a letter and presentation sent to Sybase officials in October, Sandell also suggested that they consider buying back $1.5 billion worth of shares and putting all or part of the company up for sale.
And now Sandell is starting to play rough. The investment firm, which is registered in the Cayman Islands and operates out of New York, announced last Friday that it plans to nominate three people for election to Sybase's nine-member board of directors at the Dublin, Calif.-based vendor's 2008 annual meeting, which has yet to be scheduled.
Sandell officials declined to comment for this story. But the hedge fund, which has a history of taking activist shareholder positions, contended in its presentation to Sybase that the vendor has long made underwhelming strategic decisions. Rectifying that could increase Sybase's stock-market valuation by as much as 60%, according to Sandell.
"There is significant value in Sybase's database and mobility franchise, yet Sybase trades at a discount to its peers on virtually every valuation metric," the investment firm wrote in its presentation.
Sandell's investments in various companies had an overall value of $2.6 billion as of Sept. 30, according to a filing submitted to the U.S. Securities and Exchange Commission. In the case of Sybase, the investment firm said in another SEC filing last week that it and several other entities whose investments it manages own a combined 6% of the software vendor's common stock.
In the announcement of its director nomination plans, Sandell claimed that Sybase "has taken no discernible action" on the firm's suggested actions, nor any other steps to increase shareholder value, since October.
Thomas Sandell, the investment firm's founder, principal and CEO, said in a statement that Sandell officials "have been very frustrated by the apparent complacency of the [Sybase] board and management toward creating value." He added that direct shareholder representation is needed on the board "to ensure that all alternatives are considered."