The vote to approve the comination of the two companies, to be taken tomorrow morning at Osicom's annual shareholders meeting, will have several consequences. First of all, it could make Osicom -- soon to be known as Sorrento -- more palatable for investment or even a buyout. Shareholders will also vote on whether to increase the number of Osicom's authorized shares -- the number of shares a company can legally create under its articles of incorporation -- to 150 million.
Those items are key to Sorrento's future as it continues to run from the long shadow of its parent company, Osicom. For years, Osicom has been awash with controversy for having overstated the value of contracts and for having allegedly artificially inflated its stock price, a claim its executives refute (see Osicom Investors Rebel).
But depending on how Wednesday's vote goes, Sorrento may be able to distance itself from former Osicom managers, now listed as "consultants" to the company, while opening itself up for a strategic investment or a possible acquisition.
Osicom currently has a 10.3 million-share float, which is relatively low, making the stock more volatile than its peers. By increasing the number of authorized shares to 150 million, which is sort of like printing money, Osicom accomplishes the following things:
Creating more authorized shares also enables the new Sorrento to raise money by exchanging some shares for a strategic investment. After such an investment is made, it might lead to Sorrento's merger with another company that needs a metro DWDM product (see Is Sycamore Sniffing Around Sorrento? and Metro Battle Brews at Worldcom).
"Up until now I don't think the company's ever really been for sale," says one Osicom shareholder, who asked not be named. "I think it’s all predicated upon what happens Wednesday and whether everything is approved. At that point we'll see a much clearer story developing if Sorrento is indeed looking to get bought."
Other evidence suggests that Sorrento is positioning itself to be showcased in the best possible light after Wednesday's annual meeting. Two of the firm's latest press releases tout its intellectual property portfolio and its staffing triumphs -- items used to sway suitors in the M&A world (see Sorrento Doubles Its Staff).
Indeed, Sorrento's managers probably realize that times are such that a combination of assets will only help its chances, especially as its customer list -- though presently impressive -- falls prey to sour market conditions (see Sorrento's Sitting on Good News). Just this week, for example, United Pan-Europe Communications NV (UPC) (Nasdaq: UPCOY), a Sorrento customer and investor, has been grappling with several cost-cutting issues, including a delayed wireless rollout in Switzerland and staff reductions at its Dutch facilities.
Sorrento and Osicom representatives could not be reached for comment.
-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com