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CoSine Seeks New Blood

Light Reading
News Analysis
Light Reading
7/26/2005

Hot on the heels of a failed merger and a stock market delisting, troubled switch vendor CoSine Communications Inc. (OTC: COSN.PK) is on the prowl for someone to buy.

The company’s board has approved a plan to go on the acquisition trail, CoSine CEO Terry Gibson tells Next-Gen Data Center Forum. “We’re considering a lot of different options,” he says. “It could be a number of companies.”

The leap into the M&A space is the latest turn in a roller-coaster ride for CoSine since it announced poor second-quarter results last year. This was followed by layoffs and the termination of the lease on its Redwood City, Calif., headquarters (see CoSine Losses Grow in Q2, CoSine Cuts to the Bone, and CoSine Posts Q3).

Earlier this year, telecom equipment manufacturer Tut Systems Inc. (Nasdaq: TUTS) offered $24.1 million for the company (see Tut Takes On CoSine). But in May, CoSine broke off the deal, saying it was unlikely to gain shareholder approval (see Tut Responds to CoSine ).

This was followed by a Nasdaq delisting, although the company’s stock is now being traded on the OTC marketplace under the ticker symbol COSN.PK (see CoSine Announces Delisting Notification).

Gibson says that at this stage there is “nothing concrete” to report on the acquisition front, though he hopes the plan will help the company claw its way back onto Nasdaq. “Over time, if we’re successful with this strategy, we will look to relist if it makes sense."

The ideal acquisition target will be a firm with “certain financial profiles,” according to Gibson. “We’re looking for companies that are profitable or are very likely to be profitable in the near term."

Technology, however, will not be the main criterion. “At this juncture it’s less of a technology issue. It’s more a question of ‘is the target company profitable, and is it available for a reasonable price?’ ”

But time and money are running out for the San Jose, Calif., vendor. In its preliminary financial results for the quarter ended June 30, CoSine had $23.1 million in cash, down from $24.9 million at the end of December 2004 (see CoSine Changes Plans).

Gibson admits that time is not on CoSine’s side. “There’s a clock ticking -- cash is a wasting asset,” he says. But, he adds, “We’re prepared to spend the time to do it right.”

Up until now, a sell-off seemed the most likely exit route for the company, which was once a rising star in the telecom space, thanks to its switching and routing technologies (see CoSine: 'Come & Get Us' and CoSine: The Big Sell-Off?).

Gibson would not rule out the possibility of CoSine still licensing some of its intellectual property to a third party, although he says this would run in tandem with the company’s M&A plans. However, he cites support for CoSine’s existing customers as a key priority.

— James Rogers, Site Editor, Next-Gen Data Center Forum

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