Texas investor Sam Wyly has dropped his second proxy battle against

Computer Associates

(CA) - Get Report

, but the software maker may not be out of the woods yet.

The controversial deal between Wyly and CA, announcedWednesday, is generating discontent among otherinvestors and prompting some influential observers tosay it flies in the face of the good corporate governance practices that both sides claimed to endorse.

"I don't think this ends the story," said Pat McGurn,vice president and director of corporate programs atInstitutional Shareholder Services. "I think, frankly,these issues and the scrutiny of CA still have legs."

On Wednesday, Computer Associates announced in a press release that Wyly's Ranger Governance has agreed todrop its proxy challenge for five seats on the CAboard of directors. But that press release left outthe fact that CA agreed to pay Wyly $10 million, whichwas disclosed in a filing with the

Securities andExchange Commission

. CA also agreed to name anotherindependent member to its board.

In return, Wyly agreed not to launch another proxy contest for five years and extend a noncompete agreement with the company for five years. Theoriginal noncompete agreement was part of CA'sacquisition of Wyly's Sterling Software.

McGurn said he has heard from investors who areconcerned and have questions about the deal. Heindicated his firm may weigh in with its proxyanalysis expected to be issued in mid-August beforeComputer Associates' annual shareholders meeting on Aug.28. "I think depending on what the answers to thosequestions are, you're going to see some furtherfighting at the upcoming annual shareholders meeting,"McGurn added.

He pointed to the company's stock price decline asevidence of investor discontent. Shares of ComputerAssociates have tumbled 11.6% since Tuesday to closeThursday at $7.61. News of investigations by the SECand U.S. Attorney's office into the company'saccounting practices have helped push the company'sstock down 77.3% since the beginning of the year.

"It's kind of tough for management to make the casethat the legal expenses in the fight against Wylywould have been more" than $10 million, saidPrudential Securities analyst John McPeake, whobelieved Wyly would have lost the proxy battle anyway."It smacks a little bit of '80s greenmail." McPeakehas a market perform rating on CA, and his firm hasn'tdone any banking business with the company.

McGurn agreed the deal is reminiscent of greenmail ofthe 1980s, in which corporate raiders owning acompany's stock would threaten a proxy battle andcompanies would buy back their stock at a premium inorder to get rid of them. McGurn called thenoncompete clause a "phony baloney wrapper put onransom money."

"Companies should not under any circumstances paynoisy investors to go away," McGurn said. "It's not agood governance practice."

But Stephen Perkins, a candidate on Wyly's slate andpresident of Ranger Governance, defended the deal,noting that Wyly got what he wanted when CA last week

named four new directors to the board.

"The fact of the matter is this is not about themoney," he said, noting that Wyly has not recouped thefull $12 million he spent on his unsuccessful proxyfight last year and $2 million he spent so far thisyear. "I think what CA is getting out of this is abetter board."

Computer Associates spokeswoman Denise DesChenes alsodefended the deal, saying the noncompete clause is animportant part of it. CA also spent about $12 millionon the proxy fight last year, but that does notinclude management time.

Others, meanwhile, didn't necessarily like the looksof the deal, but said it makes sense given that itremoves one more pull on management's time andattention.

"I'm glad it's over," added Merrill Lynch analystPeter Goldmacher. "It was a major distraction formanagement ... I think CA did the right thing."Goldmacher has a neutral rating on CA and his firmexpects to receive or intends to seek compensation forinvestment banking services from CA within the nextthree months.

As for Wiley, who owns only 100 CA shares but morethan 1 million options, the deal raises questionsabout his overall goal in the proxy battle. But then,said Goldmacher, "I was never under the impressionthat Wiley was doing pro bono work."