Barring an unlikely shareholder revolt, Orchestream Holdings plc (London: OCH) will be sold to competitor MetaSolv Software Inc. (Nasdaq: MSLV) for less than $12 million within the next month (see MetaSolv Bids to Buy Orchestream).

The quoted price, which represents a fraction of Orchestream's value at its IPO in 2000 (see Orchestream Gets A Flying Start), could wind up even lower, as adjustments are made to reflect the value of Orchestream's stock after its pending end-of-year financials.

The sale -- for less than 1 percent of the company's 2001 market cap of $2.89 billion -- ends a long downward spiral for Orchestream. Is it a happy ending?

To answer, let's turn the clock back to 1996, when Orchestream was founded by U.K. kid entrepreneur Charles Muirhead, with help from his dad -- a lawyer specializing in getting rock musicians out of tight legal spots -- and money from private investors, including record producer Hugh Padgham. (Charlie's first endeavor was a successful online music publishing business begun after he dropped out of London's Imperial College.)

From its inception, Orchestream was characterized by slick marketing moves. Muirhead and his brother Richard hopped on the enterprise Quality of Service bandwagon at first, claiming to be ready to compete or partner with the likes of 3Com Corp. (Nasdaq: COMS). But after management of the company went to grayer if not wiser heads circa 2000, Orchestream went with the flow, touting its role as a VPN company just in time for its IPO (see Orchestream Banks on QoS and Orchestream Models Its Makeover ).

In May 2001, Orchestream shed yet another skin, sweeping its enterprise clientele under the rug in order to impress carriers. At the time, Light Reading seemed alone in pointing to the state of undress resulting from the Emperor's multiple costume changes.

An excerpt from Orchestream Preps VPN Push:

Gradually, Orchestream's bubble bumped into the telecom one. Its purchase of Crosskeys (see Orchestream to Acquire CrossKeys) seemed to go nowhere. Job cuts, management changes, accounting errors, and other mishaps followed in a now-familiar litany (see Orchestream Warns of Job Cuts, Orchestream Posts Q1, Loses CEO, and Orchestream Admits Accounting Error).

Can MetaSolv, which has its own downturn-induced tale of woe (see MetaSolv Reports Q3), hope to make good of this miserable record?

MetaSolv sources say yes. The maker of OSS (operations support system) software says the buy will achieve several goals:

Some of these hoped-for goals are at least questionable. First, MetaSolv already has offices in Europe and shares many of the same customers Orchestream has, including AT&T Corp. (NYSE: T), BT Ignite, Cable & Wireless (NYSE: CWP), SBC Communications Inc. (NYSE: SBC), Telstra Corp., and Vodafone Group plc (NYSE: VOD).

Beyond some office space and extra employees, it's tough to tell just what Orchestream brings to MetaSolv's EMEA push. Indeed, Orchestream doesn't seem to have a longstanding claim to some of the most influential customers. Its relationship with Vodafone, for instance, is fairly recent (see Orchestream Offers Trading Update).

MetaSolv doesn't have a great track record with acquisitions. According to its SEC filings, its purchase of the OSS assets of Nortel Networks Corp. (NYSE/Toronto: NT) in February 2002 expanded its ability to support IP-based service activation. But the company took a goodwill impairment of $28 million for the nine months ended September 30, 2002, up from zero the year before. Also, it's not clear how Nortel's offerings will or won't be sold with Orchestream's, which also performs IP service activation.

But at least one analyst says MetaSolv's buy shouldn't be downplayed. "I think Orchestream's product capabilities are a plus," says Karl Whitelock, program director of OSS competitive strategies at Stratecast Partners. He says Orchestream's IP capabilities are bound to increase the value of MetaSolv's OSS offerings. It's also conceivable that MetaSolv could help Orchestream resurrect some value buried in its original acquisition of Crosskeys.

Whitelock also claims Orchestream's got better mindshare than MetaSolv in Europe. Still, he acknowledges that integration of products remains to be demonstrated. Further, the acquisition is the latest evidence of ongoing consolidation in the OSS market, following news last week that Micromuse Inc. (Nasdaq: MUSE) has bid on Lumos Technologies (see Micromuse to Acquire Lumos). It's conceivable that MetaSolv itself could come under the wing of another company before the market stabilizes.

It also remains to be seen whether Orchestream's mindshare holds substance or will fall away like yet another used-up carapace. — Mary Jander, Senior Editor, Light Reading
www.lightreading.com