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— A Compuware shareholder is seeking a class action lawsuit against the software supplier and others alleging its directors breached fiduciary duties at shareholders’ expense in a proposed $2.5 billion sale of the company.

The 27-page lawsuit was filed Thursday by shareholder David D. Essig in Oakland Circuit Court. Essig could not be reached for comment and his attorneys did not return calls.

The lawsuit claims Compuware’s board of directors — all individually named as defendants — have an obligation to obtain the highest value reasonably available for shareholders. If a transaction results in any change of corporate control, then shareholders are entitled to receive a significant premium.

But instead, the lawsuit alleges the board conspired with or aided and abetted Thoma Bravo, the private equity investment firm that has agreed to acquire Compuware, Project Copper Holdings, Elliott Associates and others to arrive at an unfair process and unfair price for company shares. The lawsuit seeks to rescind the recent merger, or any terms of it that have been implemented, until all those involved “implement a fair procedure or process to sell the company.”

It also seeks that all the defendants be directed to exercise fiduciary duties in the best interest of shareholders and to be awarded all attorney costs, expert fees and other relief where appropriate.

Named in the complaint are Compuware President and CEO Bob Paul and Compuware Chairman Gurminder S. Bedi, both board members; along with Jeffrey J. Clarke, John Freeland, David G. Fubini, William O. Grabe, Fritz Henderson, Faye Alexander Nelson, Jennifer Rabe, Lee D. Roberts and Stephan F. Schuckenbrock.

Lisa Elkin, spokeswoman for Compuware and its officers, could not be reached for comment.

“This is the right transaction for Compuware at the right time and reflects a thorough Board review of strategic alternatives and the work of a committee established earlier this year to focus on value generating steps,” Bedi said in a press release last week when the transaction was announced. “This agreement provides shareholders with immediate and substantial cash value ... ”

Detroit-based Compuware is a computer software company involved in the testing and development of programs. It has more than 7,100 customers around the globe including 46 of the top 50 Fortune 500 companies and 12 of the top 20 most visited U.S. websites, according to the lawsuit.

Rajeev Singhal, an associate professor of finance at Oakland University said stockholder disputes escalating to litigation are not a rarity.

“It is always a duty of directors of a board to act in the best interests of their shareholders,” said Singhal, who teaches business mergers and acquisition classes. “The question is if they are acting in a manner that is truly on behalf of the shareholders or what amounts to sweetheart deals for themselves. If so, that constitutes a conflict of interest and is inappropriate.”

In its request to be approved as a class action claim, the lawsuit notes the U.S. Securities and Exchange Commission filings state there are more than 220 million shares of Compuware common stock outstanding, held by hundreds if not thousands of shareholders across the U.S.

The complaint said the proposed buyout price of $10.92 per share in the merger agreement “drastically undervalues” the company’s prospects and represents a “meager 8 percent premium to Compuware’s average stock price in the last year and represents a negative premium to its 52-week high.”

The stock has traded as high as $11.39 this past December and the $10.92 buyout price is well below a “recent analyst target of $13.00 per share,” the suit says.

The complaint claims rather than “standing tall” against proposals made by Elliott Associates, a New York hedge fund company, the Compuware board “caved in” to pressure and threats against the company made by Elliott, which owns about 9.5 percent of Compuware stock. The motive, according to the complaint, is that securing a sale to a private equity firm “typically retains companies’ existing leadership.”

“Compuware management will actually stand to benefit from sale of the company at an unfair price,” according to the lawsuit.

The lawsuit said the proposed buyout — announced Sept 2 — “is Elliott’s latest attempt to force a sale of a public company by using its now well-worn playbook.”

The alleged “playbook” involves the company acquiring a position in a publicly traded company slightly above the threshold requiring public disclosure; leverages ownership to obtain board representation, often through the threat of a proxy fight; then pressures the target by criticizing operations and leadership, including threatening replacement of directors or officers. Once accomplished, it then submits an undervalued offer and tries to manipulate the company from inside to initiate the sale, combining with private equity investors to promote the acquisition bid.

Lastly, according to the complaint, the current arrangement even protects against the threat of alternative bidders out-bidding Thoma Bravo, with provisions that “guarantee” Bravo will not lose its preferred position. Among them: a “termination and expense fee provision that requires Compuware to pay Thoma Bravo $82.4 million if the proposed buyout is terminated in favor of a superior proposal.”

mmartindale@detroitnews.com

(248) 338-0319

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