Unisphere Registers For IPO

Unisphere Solutions Inc. (Nasdaq: UNSP), the company set up by German telecommunications giant Siemens AG (OTC: SMAWY), filed for its public offering last Friday, hoping to raise $150 million.

Back in the spring of 1999, Siemens put up the initial $1 billion Unisphere used to buy Argon Networks, Castle Networks, and Redstone Communications -- the three companies that comprise the company today. Redstone and Castle appear to be bringing in significant revenues, but Argon has turned into a lemon. "During the six months ended March 31, 2000, we canceled and abandoned Argon's original development concept of its gigabit switch router and we recorded an impairment charge of $127.3 million," says the company's S-1 statement.

For the six-month period ended March 31, 2000, Castle and Redstone generated Unisphere about $18 million. As the company has worked toward generating revenues, Siemens has continued to act as a sugar daddy, providing cash for the startup venture, which had about $2.8 million in revenue for 1999 versus $367 million in losses. But once the company goes public, Siemens intends to turn off the faucet, according the S-1.

While Unisphere will not enjoy a steady flow of cash from its parent any longer, Siemens will remain the majority stock holder in the company, which means that the top brass in Munich will still have final say over everything from board members to product strategy.

This relationship could have several repercussions, according to the risk section of the S-1. For one, “Siemens will have the power, acting alone, to elect a majority of our board of directors and will have the ability to determine the outcome of any corporate actions requiring stockholder approval, regardless of how our other stockholders may vote.” In addition, Siemens's interests could conflict with those of the stockholders, and its ownership could delay or prevent a change in control of the company or discourage potential acquirers, which could hurt the market value of the stock.

Secondly, conflicts of interest may arise between Unisphere and Siemens, according to the S-1. Not only do the two companies have products in certain categories that compete with each other, but some of Siemens’s reseller partners also have products that compete directly with Unisphere products. This could be harmful to Unisphere because Siemens may devote more time and resources to selling competitors' products than Unisphere’s, according to the S-1.

Credit Suisse First Boston is the lead underwriter, with J.P. Morgan & Co. (NYSE: JPM) and UBS Warburg as comanagers. The IPO is still awaiting SEC approval and has yet to be scheduled.

--Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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