More private companies likely amid consolidation

Harbinger Capital Partners is hoping to buy Openwave Systems Inc. at closeout prices. And as the Alltel Corp. deal demonstrates, Harbinger isn’t the only private firm looking for a bargain in wireless.
The investment firm is looking to buy more than 40 million Openwave shares at $8.30 per share-a discount of as much as 9% from the price the stock commanded last week. The proposed $335 million deal would give the firm 62% of Openwave’s outstanding shares.
Harbinger-which is already Openwave’s second-largest shareholder-has fought unsuccessfully to reconfigure the company’s board amidst a protracted proxy battle. The investment firm is hoping to merge the company with privately held BridgePort Networks and install BridgePort chief Mike Mulica as CEO.
Openwave was snagged last year in a stock-option backdating scandal that ensnared a host of tech companies, and its stock has continued to slide from its April 2006 price of $22.95. The company earlier this year retained Merrill Lynch as a financial adviser to explore strategic alternatives including a possible sale.
“For nearly a year, this board has stood by as Openwave dramatically underperformed market expectations,” said Harbinger Managing Director Howard Kagan. “It has refused to seat a Harbinger board candidate who received 57% of the stockholder votes at the January 2007 annual meeting.. Still, after two months, no transaction has been announced and the company’s operations continue to struggle.”
Alltel, of course, made headlines last week by agreeing to be acquired by two private-equity firms for a staggering $27.5 billion. The news sent shares of Amdocs Ltd. skyward as investors speculated the St. Louis-based technology company may be ripe for a takeover. Some smaller tier-two carriers may be for sale, and even Sprint Nextel Corp. has been mentioned as a potential acquisition. And Comverse Technology-which continues to wear the same stock-option albatross that weighs on Openwave and was delisted by the Nasdaq last week, may be a target for acquisition by private-equity firms.
So while a handful of players on the content playground consider going public, some other mobile companies are moving the opposite direction. Analysts expect more private acquisitions as the market matures and the number of players winnows.
“There is a lot of consolidation in the segment,” said Roger Entner, senior VP for the communications sector at IAG Research. “You have a relatively limited number of providers, you have consolidation, and you have growth in the segment, or expected growth in the segment. It’s turning into more and more of big-player game.”
LogicaCMG earlier this year pulled off one of the first big private-equity deals in the space, spinning off its telecoms product division to a consortium led by Atlantic Bridge Ventures for $518 million. The move gave birth to a new company, Acision, which offers messaging, billing, content enablement and CRM services to telecoms and media companies. Meanwhile, LogicaCMG refocused on its expanding IT services business.
“As a product company, (Acision) requires investment,” said Oswin Eleonora, VP of global telecoms for Acision/LogicaCMG. “It requires not just the ability to do R-and-D, not just standard roadmap issues, but aggressive, forward-looking investments. When you’re part of a larger consulting firm that’s used to billing on a per-hour basis, that can be a difficult concept to get across.”
Indeed, public companies must answer to shareholders who can demand short-term returns profits. Private investors can afford to take a longer view, naturally, and take more risks in an effort to grow their businesses. And as the recent activity shows, they’re not hesitant to shell out millions to grab a piece of an industry that may be undervalued by the public.
“We believe what you’re seeing here is the beginning of a cycle where companies like ours will first be taken private and then, further down the line, either form relationships with or become part of the larger players in the market,” said Eleonora. “Convergence isn’t just something that happens with technology. It’s also something that happens with the breakup of players in the market.”