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Occam's Merger

Light Reading
News Analysis
Light Reading
12/26/2001

Occam Networks Inc. appears to be coming to Accelerated Networks' rescue by agreeing to merge with the ailing access device company.

Occam, a next-generation digital loop carrier maker, will get a public stock listing and some additional funding to boot when it merges with Accelerated early next year. Accelerated, which was left in the lurch this year when one of its largest customers and distributors bought one of its rivals, looks set to be pulled back from the brink of annihilation thanks to Occam. The details of Accelerated's decline and Occam's intentions were revealed in a filing the companies made with the Securities and Exchange Commission, Monday (see Accelerated, Occam File for Merger).

The merger, though not a market-changing event by any means, is noteworthy in that it may come to typify what happens in 2002 when an abundance of lackluster public companies and well-funded private ones wallow in the optical equipment space.

The all-stock deal will give Occam stockholders shares of Accelerated, collectively valued at about $10 million. The two companies now have more than $44 million in cash and, in conjunction with the merger, the new Occam will get an additional $10 million in cash and a $10 million debt funding commitment from outside investors.

When the merger is complete, the new company, Occam, will be run by Kumar Shah, Occam's current president and CEO. Occam's board of directors will also replace Accelerated's, leaving only one board seat for a former Accelerated director.

Occam executives also dominate the company's new roster, the filing reveals. Lee Hilbert will continue as VP of finance, Russel J. Sharer, will be the company's VP of sales marketing, and Jim Soriano will be VP of engineering.

Both companies say they'll spend about $1.4 million associated with the merger, of which about $500,000 had been paid as of December 19, 2001. Severance costs for the employees Accelerated had dumped will run about $800,000, of which about $650,000 has already been paid.

The contrast between up-and-coming Occam and decelerating Accelerated couldn't be greater.

Accelerated was founded in 1996 but didn't ship products in volume until Sept. 1999. The company had built a line of integrated access devices, but got creamed when the competitive local exchange carrier (CLEC) market evaporated.

The company had an accumulated deficit of about $130 million as of September 30, its SEC filing states. It had only booked about $34.2 million in net revenues for all of 2000, and "its net revenue has significantly decreased in subsequent periods."

In 2000, three Accelerated Networks customers were responsible for $30.5 million in sales, but those same three customers are expected to generate less than $2.3 million in revenue for 2001. Why? Part of the reason is that Accelerated's largest customer and distributor, Siemens AG (NYSE: SI; Frankfurt: SIE), accounted for about 29 percent of its revenues in 2000. And, unfortunately for Accelerated, Siemens acquired competitor Efficient Networks Inc. (Nasdaq: EFNT) in February for $1.5 billion.

As of November 30, Accelerated Networks employed 74 fulltime employees, way down from the 269 it employed as of Dec. 31, 2000. The company's most recent layoff of 60 people came just after it first announced its intention to merge with Occam.

Occam, on the other hand, was founded in 1999 and is building a next-generation digital loop carrier designed for digital subscriber line (DSL) and other incumbent carrier services.

Though Occam has booked only about $40,000 in revenues to date, the company had taken in about $41 million in financing from several investors and its deficit now sits at about $26 million.

As of November 30, Occam had 117 fulltime employees, way up from the five people it employed in December 1999.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com

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boson3
boson3
12/4/2012 | 7:23:13 PM
re: Occam's Merger
Accelerated has about $30mln of cash and securities on its books, and $7mln in debt. The deal is valued at $10mln.

Why sell a company for less than cash minus liabilities?

emma
emma
12/4/2012 | 7:23:04 PM
re: Occam's Merger
Boson3,

>Why sell a company for less than cash minus >liabilities?

There's three pillars to a great company: Sales, marketing and engineering. Accelerated had all but that critical engineering pillar. When they were acquired, all that was left was engineering, which was worthless to start with.

Emma
Half-Inch Stud
Half-Inch Stud
12/4/2012 | 7:23:03 PM
re: Occam's Merger
Ockham's Razor....

would that be an Electric Razor, with ties to Houston TX...?

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