Orca in IPTV Takeover Talks
Israeli IPTV middleware vendor Orca Interactive Ltd. is in takeover talks with a number of potential buyers, with software and messaging systems vendor Comverse Inc. (Nasdaq: CNSI) suggested as the lead suitor.
The IPTV specialist has issued a statement to the London Stock Exchange , saying it has "received preliminary approaches expressing an interest in the Company." It added that talks are at an early stage, and "there can be no certainty that any formal approach for the Company will be forthcoming."
While Orca didn't name any other party, reports out of Israel suggest Comverse, a cash-rich vendor that is on a streak of acquisitions, is one of those companies. In the past 15 months Comverse has acquired VOIP systems vendor NetCentrex, billing and customer activation specialist Netonomy, and the Kenan billing business, which it bought from CSG Systems International Inc. (Nasdaq: CSGS). (See Comverse Nabs NetCentrex for $164M, Convergence Drives Billing M&A, and Comverse Acquires Netonomy.)
The two companies already know each other well. Orca's RiGHTv IPTV middleware is part of Comverse's IPTV product, announced in December, and has been integrated with Comverse's NetCentrex IP telephony applications (for on-screen caller ID, voicemail, and so on), and Kenan billing functionality. (See Comverse Unveils IPTV System and Comverse Unveils Suite.)
The two vendors are also part of a broader consortium of Israeli vendors, called NeGeV (Next Generation Video), that is developing new, personalized video services. (See Israelis Team on Video Services.)
Orca CEO Haggai Borel tells Light Reading: "I can't say who we are talking to, but we have been approached and are talking to a number of companies. I think it's not surprising. It's not something that's against our will."
Comverse says it "does not comment on any possible future acquisitions or agreements."
Such a move would make sense for Comverse. It's eager to position itself as a credible supplier of IPTV service delivery technology to carriers, but it doesn't have a track record in the telco video world.
What it does have, though, is carrier customers (more than 500 in total), which use its products to manage and deliver messaging, voicemail, and multimedia services, and bill for them. (See COLT Picks Comverse's OSS, T-Mobile Uses Comverse , SFR Deploys Comverse, Magyar Picks Huawei, Comverse, and Rogers Uses Comverse for recent examples of announced accounts.)
Comverse also has the financial clout to develop and market an effective IPTV system. Its parent, Comverse Technology Inc. (Nasdaq: CMVT), which also owns signaling software firm Ulticom Inc. (Nasdaq: ULCM) and surveillance technology vendor Verint Systems Inc. , has a net cash position of about $1.4 billion and quarterly revenues around $400 million. Analysts expect the company to end its financial year (January 31, 2007) with revenues of around $1.6 billion and net income of about $175 million. (See Comverse Reports Partial Q3.)
That's the sort of financial backing Orca needs. Despite being among the recognized suppliers of IPTV middleware, along with Microsoft Corp. (Nasdaq: MSFT), Minerva Networks Inc. , Siemens Communications Group (Myrio), Thomson S.A. (NYSE: TMS; Euronext Paris: 18453), and UTStarcom Inc. (Nasdaq: UTSI), Orca has struggled to pin down large revenue-generating deals.
While it has won some deals, Orca reported revenues in the first six months of 2006 of just $914,000 and a net loss of $3.4 million, down from revenues of $3 million a year earlier. It did, though, report a cash position of $18.7 million at June 30, 2006. (See Sonaecom Deploys Orca and Orca Fishes Out Jazztel.)
The company put those results down to industry consolidation and delayed purchasing decisions but claimed a strong pipeline of potential deals and a closed deal with an unnamed "major European telecoms service provider."
What Orca also currently lacks is a major telecom systems partner. It previously had a relationship with Lucent -- now, of course, Alcatel-Lucent (NYSE: ALU) -- but that petered out when Lucent adopted Telefónica SA (NYSE: TEF)'s IPTV platform in April 2006. That platform is now the basis of Alcatel-Lucent's MiViewTV solution. (See Lucent, Telefonica Team on IPTV and Lucent Unveils MiViewTV.)
So it needs a new partner, or owner. In a recent Light Reading Insider report, "IPTV Middleware Market Dynamics," research analyst Dawn Bushaus noted: "Orca is again looking for a partner to help it target larger service providers." She added that Orca's revenue-generation issues "could make it ripe for a takeover." (See IPTV's Middleware Mandate.)
Comverse Technology has some financial issues of its own. It faces delisting from the Nasdaq after failing to file its quarterly reports while it investigates historical stock option practices and revenue recognition issues. Those issues date back to when the company was being run by Jacob "Kobi" Alexander, who is currently fighting extradition from Namibia. (See Cops Catch 'Most Wanted' Ex-CEO, Comverse Faces Delisting, and Comverse Updates on Probe.)
Comverse Technology's former General Counsel William Sorin, who was charged with fraud along with former CEO Alexander and former CFO David Kreinberg in September 2006, recently settled civil charges with the Securities and Exchange Commission (SEC) relating to the backdating of options. (See SEC Settles With Sorin.)
— Ray Le Maistre, International News Editor, Light Reading