Why Are LG & Nortel Interested in Vodavi Technology? (VTEK, NT)

The Microcap Speculator submits: In the holiday rush at the end of 2005 I failed to notice that LG-Nortel Co. Ltd. took a 23.3% position in Vodavi Technology (ticker: VTEK). Formed in August 2005, LG-Nortel is a telecom network equipment joint venture betweeen the two companies.

At first blush, the investment is strange. Vodavi is so small (current market cap. of $22M) that the investment wouldn't have any measurable effect on the two megacaps, or even the roughly $300M joint venture. For this reason, I believe that LG and Nortel are after Vodavi's technology, not just share price appreciation. Vodavi's VoIP equipment and software (soft phone, messaging platform, Telenium phone systems) could be packaged with the WiMax equipment that the LG-Nortel joint venture is developing.

Before year end 2006, I expect the joint venture will: (1) announce a deal under which LG-Nortel will distribute Vodavi VoIP telephony products as part of an integrated WiMax communications package; (2) take a board seat; and (3) increase its investment stake. A tender offer for the entire company is also a possibility, although I see that as less likely.

Do you have any insights into this situation? If so, please let me know.

DISCLOSURE: I am long VTEK. I have no position in NT or LG. Not a recommendation to buy or sell any security. For informational and educational purposes only.

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