What's Up With ONI's Stock?

ONI Systems Inc. (Nasdaq: ONIS) has taken the express route to creating more liquidity for its stock by issuing more shares and allowing insiders to sell earlier than usual.

The company announced on Thursday that it will offer an additional 8 million shares of its common stock. In addition, Goldman, Sachs & Co., lead underwriter, has authorized an early release of approximately 14.3 million shares from the 180-day lockup agreements to go on sale October 2.

The combination of both these events at the same time has raised eyebrows in the industry. Earlier this month, roughly 8.5 million shares were released from the IPO lockup agreements -- and will remain open for sale without restriction. Already there have been at least 49 registrations filed with the Securities and Exchange Commission to sell the stock.

The recent moves are getting mixed reactions from analysts. Some say that allowing the company to sell off shares incrementally is a good idea, because then the market won’t be flooded at the end of the lockup period with people selling their shares.

The company didn’t specifically say why it's issuing more stock, but some are speculating that the company is trying to raise more cash and float more shares to make room for acquisitions.

“It looks like they might be looking to buy somebody,” says Gina Sockolow, an analyst with Brean Murray & Co. Inc. “They only have a single point-product. And that’s one way to get into a new space.”

“Generally speaking, this is exactly what you want to see happen,” says Barry Sine, senior telecom equipment analyst with Kaufman Bros. LP “The stock is strong enough to support more supply, so it seems like very smart way to do this.”

Judging from the stock price, which has oscillated up and down within a range of $80 to $104 during the past month, the market isn't quite sure how to react, either. On Friday, the stock rallied and closed at $86.

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

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