BMC Software Gets Slapped with Class Action Lawsuit

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Event Summary

The law firm of Milberg Weiss today announced that purchasers of BMC Software, Inc. (Nasdaq: BMCS) common stock during the period between July 29, 1999 and January 4, 2000 (the "Class Period") can join the class action commenced in the United States District Court for the Southern District of Texas. The suit claims that BMC insiders made false statements about the strength of sales and integration of acquisitions, sold stock when BMC was trading at an all time high, then announced that third quarter FY00 earnings would be much worse than expected.

According to the overview of the lawsuit, "This is an action on behalf of purchasers of BMC Software, Inc. ("BMC") stock between 7/29/99-1/4/00 (the "Class Period"). Defendants' false and misleading statements about strong sales of BMC's existing software products, the successful integration of its acquisitions of Boole & Babbage and New Dimension Software earlier in 1999, strong demand for its mainframe MIPS software, notwithstanding a slow down in sales of IBM mainframe computers, and the lack of customer deferrals of orders or purchases due to Y2K concerns, which would result in 25%-30% EPS growth for BMC during F00-F01 and 3rd and 4thQ F00 EPS of $.52-$.55 and $.58-$.64, respectively, artificially inflated its stock to a Class Period high of $86-5/8 on 1/3/00. During the Class Period, BMC insiders and controlling shareholders sold 1,085,015 shares of their BMC stock at as high as $78.83 for $63.1 million in illegal insider-trading proceeds. On 1/5/00, just two days after BMC's stock hit its all-time high, BMC revealed that, due to problems integrating the BMC, Boole & Babbage and New Dimension sales forces, sales execution procedures in Europe and the U.S., and weakness in demand for mainframe MIPS software products, its 3rdQ F00 results would be much worse than earlier forecast. BMC's stock fell from $85-1/8 on 1/4/00 to $47, an almost 50% drop in one day, and when BMC reported 3rdQ F00 EPS of just $.41 - a decline from its 2ndQ F00 EPS and its year-earlier 3rdQ F99 EPS - its stock continued to fall to just $36."

A spokesman for BMC told TEC that the company had no comment.

Market Impact

This is an untimely event for BMC. One formidable competitor has been created in Computer Associates with the prior acquisition of Platinum Technology and the recently announced acquisition of Sterling Software. BMC needs to keep executing its business strategy to survive against the combined CA/Platinum/Sterling juggernaut. If BMC fails to execute, they may get run over by CA in the market.

User Recommendations

Customers evaluating BMC's software offerings should continue the process. However, they should keep an eye on the status of this class action lawsuit, and its potential effect on BMC's financial viability, the makeup of corporate management, and overall corporate strategy. We expect significant executive turnover as a result of this lawsuit, which means that corporate vision and execution will be impacted in both the short and long term.

All software acquisitions should include fallback provisions in case of acquisition or discontinuance of products. Organizations should be extremely careful when and if they make final software acquisitions from BMC .

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