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Osicom Prepares for TransformationOsicom Prepares for Transformation

Shareholders will vote tomorrow on turning Osicom into Sorrento and the creation of more stock

January 16, 2001

3 Min Read
Osicom Prepares for Transformation

On Wednesday, shareholders of Osicom Technologies Inc. (Nasdaq: FIBR) will vote on the transformation of their company's identity into that of its subsidiary, Sorrento Networks Inc.

The vote to approve the comination of the two companies, to be taken tomorrow morning at Osicom's annual shareholders meeting, will have several consequences. First of all, it could make Osicom -- soon to be known as Sorrento -- more palatable for investment or even a buyout. Shareholders will also vote on whether to increase the number of Osicom's authorized shares -- the number of shares a company can legally create under its articles of incorporation -- to 150 million.

Those items are key to Sorrento's future as it continues to run from the long shadow of its parent company, Osicom. For years, Osicom has been awash with controversy for having overstated the value of contracts and for having allegedly artificially inflated its stock price, a claim its executives refute (see Osicom Investors Rebel).

But depending on how Wednesday's vote goes, Sorrento may be able to distance itself from former Osicom managers, now listed as "consultants" to the company, while opening itself up for a strategic investment or a possible acquisition.

Osicom currently has a 10.3 million-share float, which is relatively low, making the stock more volatile than its peers. By increasing the number of authorized shares to 150 million, which is sort of like printing money, Osicom accomplishes the following things:

  • It enables the Osicom-Sorrento combination to take place, because Osicom must allow Sorrento shareholders to exchange their current shares for shares of the new company.

    • It allows current stock option holders in both firms to be able to buy stock in the new "pure play" entity. This will let several former Osicom managers profit, even though they ran the company down. However, letting them line their pockets may assure that Sorrento's more or less rid of them for good.

      • It gives the new Sorrento more shares to entice new employees. This is a high priority for Sorrento now, as it has been having trouble hanging onto key engineers. In the past few months Light Reading sources have identified several engineers -- including Yongqian Liu, Eric Gou, Katherine Liu, Gang Zhao, Li Zhang, Leah Zhang, and Yi Zhu -- who have ditched Sorrento for other opportunities, especially pre-IPO startups (see Sorrento Staff to Split? ).

        Creating more authorized shares also enables the new Sorrento to raise money by exchanging some shares for a strategic investment. After such an investment is made, it might lead to Sorrento's merger with another company that needs a metro DWDM product (see Is Sycamore Sniffing Around Sorrento? and Metro Battle Brews at Worldcom).

        "Up until now I don't think the company's ever really been for sale," says one Osicom shareholder, who asked not be named. "I think it’s all predicated upon what happens Wednesday and whether everything is approved. At that point we'll see a much clearer story developing if Sorrento is indeed looking to get bought."

        Other evidence suggests that Sorrento is positioning itself to be showcased in the best possible light after Wednesday's annual meeting. Two of the firm's latest press releases tout its intellectual property portfolio and its staffing triumphs -- items used to sway suitors in the M&A world (see Sorrento Doubles Its Staff).

        Indeed, Sorrento's managers probably realize that times are such that a combination of assets will only help its chances, especially as its customer list -- though presently impressive -- falls prey to sour market conditions (see Sorrento's Sitting on Good News). Just this week, for example, United Pan-Europe Communications NV (UPC) (Nasdaq: UPCOY), a Sorrento customer and investor, has been grappling with several cost-cutting issues, including a delayed wireless rollout in Switzerland and staff reductions at its Dutch facilities.

        Sorrento and Osicom representatives could not be reached for comment.

        -- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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