Quest Software ( QSFT) surged Thursday following the company's announcement of a CEO change and a $400 million stock repurchase program. Quest said late Wednesday that President Doug Garn will replace Vinny Smith as CEO. Smith has been appointed to the newly created position of executive chairman, where he will focus on product development and corporate strategy. The software vendor, which competes with CA ( CA), Oracle ( ORCL), and IBM ( IBM) in the database and application management space, also announced its intention to repurchase up to $400 million of its common stock. Quest's shares jumped more than 10% to $11.69 in Thursday trading. Quest confirmed that a modified "Dutch auction" tender offer will repurchase between $135 million and $400 million of common stock at a price expected to be between $13.25 and $15.50 a share. Quest, which posted lower earnings but
beat analysts' estimates in its recent first-quarter results, plans to raise debt funding of to up to $300 million to finance part of the repurchase. If the company cannot secure this financing on terms it deems acceptable, it will press on with the tender offer or buy the shares in the open market with cash on hand. Quest's moves come at a time when software companies are repositioning themselves to deal with an anticipated spending slump , and at least one analyst welcomed the company's strategy. "While the magnitude of the repurchase is unclear, we view this move positively from the perspective of making moves to enhance shareholder value," writes Todd Weller, infrastructure software analyst at Stifel Nicolaus. "We also believe this supports a view that at $15 or below this stock is extremely cheap."
Weller also reiterated his buy rating on Quest and kept his target price at $20. "Expect stock to react positively, though uncertainty related to repurchase financing
is likely to be reflected in discount to tender range," he writes. "Even if we assume a $15 value for Quest shares we think valuation is compelling on various metrics, including multiples of maintenance revenue, total revenue, EPS, and cash flow."