Three shareholders representing 19% of the outstanding shares in Occam Networks (OCNW) have submitted a 14-page letter to the Occam Board and SEC expressing their discontent with OCNW's pending sale to its most direct competitor, Calix Networks (NYSE:CALX). You can see the letter on the SEC's website by clicking here.
The key sticking points are the buyout price and the contention that OCNW didn't do all it could to attract the highest possible bid. In the article "Calix to Buy Occam: Time to Buy Calix?", I outlined the benefits CALX stands to reap. Based on those findings, OCNW's dissenting shareholders seem to have a valid case.
Occam produces fiber optic equipment, which enables carriers to provide broadband Internet services, particularly in rural areas. This is slated to be the primary beneficiary of the Obama administration's $7B Broadband Stimulus package, aimed at delivering high-speed Internet access to more Americans. Considering the windfall of Stimulus revenues about to hit OCNW's income statement, it's reasonable to assume that other vendors would be interested in acquiring the company.
Looking at how the Stimulus will impact the combined Calix/Occam, our research suggests that Occam's revenue contribution will represent close to 30% of the company's total in 2012. However, based on the price Calix is paying for Occam, OCNW's enterprise value only represents 22% of the whole. In order for the buyout price to match OCNW's contribution, CALX would have to pay $10 per share. That's $2.50 above today's price.
Regardless of how this drama plays out, OCNW's current shareholders appear poised to benefit. If the dissenting shareholders get their way, the company will be sold at a higher price, perhaps 33% higher. If they don't, shareholders will settle for $3.83 in cash, plus shares of CALX, representing a 3% premium from today's levels.
After the deal closes, shareholders who choose to hold onto CALX stock will participate in the profits CALX will reap as a double-beneficiary of the Broadband Stimulus initiative.
Disclosure: I own shares of Occam Networks