Occam shareholders protest Calix deal

SEPTEMBER 28, 2010 By Stephen Hardy -- Three Occam Networks shareholders who combined hold approximately 19% of the company’s stock have written a scathing protest to Occam’s chairman questioning the price at which the company has agreed to be sold to competitor Calix.

SEPTEMBER 28, 2010 By Stephen Hardy -- Three Occam Networks (NASDQ: OCNW) shareholders who combined hold approximately 19% of the company’s stock have written a scathing protest to Occam’s chairman questioning the price at which the company has agreed to be sold to competitor Calix (NYSE: CALX; see “Calix and Occam all about scale”). Among other things, the letter accuses the Occam board of acting “with reckless and wanton disregard for its shareholders” in striking the deal with Calix and calls for the company to be auctioned off to the highest bidder.

The letter, emailed to Occam Chairman of the Board Steven Krausz on September 27, came from Michael Steinhardt, Herbert Chen, and Derek Sheeler. The three assert that the agreed upon acquisition price of $3.8337 per share in cash and 0.2925 of Calix common stock “comes nowhere close to recognizing either the intrinsic value of the company’s cash flows or, as in the present case, its potential strategic value to a third party.”

The three also lament that the sale is taking place “just as revenues are beginning to ramp,” in particular from projects funded via broadband stimulus awards.

As evidence, the letter cites several awards the three shareholders assert are right at Occam’s fingertips:

  • “further large orders” from Rural Telephone
  • contracts from North Central Telephone Cooperative of Tennessee and Mountain Rural Telephone of Kentucky
  • “a large $123 million stimulus award” from West Kentucky Rural Telephone

Add potential new business from Telephone and Data Systems (a current Calix customer), and you’re looking at a large pot of money, the investors assert. “We believe we know that, in sum, established customers of Occam’s alone have won close to $770 million in stimulus awards, suggesting that over $100 million of potential stimulus revenue is already at a fairly high probability range,” they wrote.

No wonder Calix is interested in buying the company, they continue. “Clearly [Calix CEO Carl Russo] knows a once in a lifetime opportunity when he sees it,” the letter states, adding, “Just as clearly, you don’t.”

Instead of what the letter further described as “a lousy deal,” the board should have shopped the company more aggressively and sought other bidders if the board had decided to sell the business -- a proposition the three investors add they’re not against, necessarily.

“We believe a post-signing market check is insufficient to ascertain value, and that the board must engage in a robust and active selling process,” they concluded. “Therefore, we reiterate our demand that the board move immediately to create a process whereby Occam can be auctioned to the highest bidder.”

Occam Networks has not reacted publicly to the letter; a Calix source contacted by Lightwave declined to comment as well. However, the fact that the dissidents hold such a large block of Occam stock indicates that closing the deal will prove more difficult than the two parties originally may have anticipated.

You can read the letter on Edgar.

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