CoSine Communications Inc.'s (Nasdaq: COSN) largest shareholder, a Mellon Bank subsidiary, is pushing the company's board to put CoSine up for sale. An April 1 letter sent to CoSine's directors by Mellon HBV Alternative Strategies LLC, criticizes the current management and says the board should act quickly to preserve CoSine's "instrinsic value."

A copy of the letter, signed by Mellon HBV's chief investment officer William Harley III, is found in CoSine's latest filing with the Securities and Exchange Commission (SEC).

"We therefore view the pursuit of an outright sale of the company as the best course of action. We call for the board of directors to hire a financial advisor for the purpose of selling the company," the letter states. "We believe that this represents the best opportunity for capitalizing on CoSine's superior technology, enhancing revenue growth, and closing the gap between the company's intrinsic value and its current share price."

"The longer the board of directors waits to take action, the more the cash burn will erode the value of the company."

Mellon HBV also took issue with the loans CoSine has granted its officers and other employees, saying the board "exercised feeble judgment" in forgiving "$24 million over the past two years."

This makes the second time in just a few months that an investment group has pushed for CoSine's sale. Late in 2002, CoSine rejected at least two buyout offers from Wyndcrest Holdings LLC, a Florida-based venture firm focused on investments in technology and digital entertainment (see Floridians Bid for CoSine and CoSine Rejects Takeover Bid).

But Mellon HBV's letter might not be taken so lightly, since the outfit owns 557,192 shares, or 5.6 percent of CoSine, making it the company's largest institutional shareholder. "We do not consider ourselves activists, but reserve the right to actively pursue changes to the board if our concerns are not addressed in a timely manner," Mellon HBV's letter says.

CoSine did not immediately return calls seeking comment on Wednesday afternoon.

— Phil Harvey, Senior Editor, Light Reading