Welcome!

IBM Cloud Authors: Jose Diaz, John Esposito, Pat Romanski, Liz McMillan, Elizabeth White

News Feed Item

Pergament Advisors, LLC requests that Overland immediately explore strategic alternatives to maximize shareholder value

NEW YORK, Nov. 19, 2012 /PRNewswire/ -- The following is a letter from Pergament Advisors, LLC to the Board of Directors of Overland Storage, Inc.

November 16, 2012

Overland Storage, Inc.
9112 Spectrum Center Boulevard
San Diego, CA  92123
Attn: Board of Directors

Board of Directors:

Pergament Advisors, LLC is the investment manager of Pergament Multi-Strategy Opportunities, LP ("Pergament") that owns a significant economic interest in Overland Storage, Inc. ("Overland" or the "Company").  Based on publicly available information Pergament is a top 10 shareholder. 

Since Eric Kelly became CEO in 2009 the Company transitioned from an OEM strategy to a branded products company providing a full suite of storage systems including disk-based network attached storage (NAS), storage area network (SAN), tape-based back-up and archival solutions as well as data management software.  An article this year stated, "Overland is the only company that now has scale-out NAS, scale-out SAN (Block), VTL, and tape." (1)

Excluding the earnings report released November 14th where management stated revenues were pushed-out by European challenges, we believe the Company reached an important inflection point of trough revenue a year ago when Overland began their new product launch.  In October 2011 Overland launched its SnapServer DX product followed by SnapSAN and recently the new scale-out NAS solution SnapScale (Cloud).  We applaud management's efforts building a higher margin branded product business with accelerating growth potential from the new baseline.  Unfortunately, Overland is misunderstood and the stock is grossly undervalued. 

The market resists giving value to Overland's successful turnaround and current high growth and margin expanding profile.  At current market capitalization and adjusting for the six capital raises (2) during Eric Kelly's tenure as CEO there has actually been a loss in value.  The Company raised approximately $45 million (2) meanwhile the current market capitalization is approximately $35 million.  Considering the Company was trading at around a $10 million valuation when Eric Kelly became CEO in January 2009 there has been an implied loss of $20 million.  This we do not applaud.  However, we believe market misunderstanding has driven this value dislocation and, fortunately, this can be easily reversed.

Eric Kelly has experience buying and selling businesses with the most relevant transaction he led being the 2002 purchase of Snap Appliances from Quantum for $10 million.  He then led the sale of that business approximately two years later to Adaptec for $100 million.  We applaud that return profile and believe a similar scenario will occur with Overland if the Board takes the right actions. 

Pergament requests that Overland immediately explore strategic alternatives to maximize shareholder value.

Overland is significantly undervalued and we believe the time has come to sell the Company to a strategic buyer.  Considering the capital raised since 2009 represents more than the current market capitalization we believe the largest shareholders, especially those who were financing participants, support our view.  Most of the financing participants were hedge funds and according to public filings and Bloomberg the ten largest hedge fund holders own approximately 67% of the common stock.  Since the financing rounds ranged from $1.25 to $2.64 with a weighted average of $1.93 (2) all of these investors are currently under water and thus we believe would most likely support maximizing shareholder value now.

Our conviction is heightened by the last Annual Shareholder Meeting held on June 12, 2012 where the Chairman of the Board, Scott McClendon, maintained his position by only a slim margin (3).  This occurred without any publicized shareholder hostility going into the meeting.  Since Mr. McClendon was a past CEO of Overland and is the longest serving board member its clear shareholders desire change to the status quo.  Since hedge funds own the majority of the Company we believe further change to the status quo, if demanded, could easily occur.  It is also important to note that the Clinton Group ("Clinton"), a known multi-strategy fund with activist strategies, is the third largest shareholder with 12.5% and holds a board seat.  After studying their publicly filed letters to various Board of Directors demanding value creation we believe Clinton's views are aligned with ours and all other shareholders.

Overland is worth at least $3.50 to an acquirer representing at least a 200% premium.

Based on 2012 calendar year revenue consensus of $60 million Overland currently trades at 0.5x, which is a significant discount to historical acquisition multiples in the storage sector.  Storage acquisitions on average have been well in excess of 2x revenue with several well known transactions at 10x.  A low end range of 2x-4x revenue represents an Overland valuation of $120 million to $240 million or fully diluted price per share of $3.50 to $6.00.  At November 15th close of $1.20 the range represents premiums of 200% to 400%. 

Revenue and cost synergies to a strategic buyer give credence to the higher end of the range.  We believe cost synergies drive tremendous value to an acquirer.  Overland's annual operating expenses are approximately $35 million, which is primarily represented as of June 30, 2012 by headcount of 79 in sales and marketing, 33 in research and development, and 25 finance/IT/HR (there are only 184 total full-time employees).  To put that in perspective, a mid-size technology company in the storage space, NetApp, has headcount of approximately 5,500 in sales and marketing and 4,000 in research and development as per the 2012 10K Filing.  We believe all of Overland's operating expenses would be redundant to a strategic acquirer increasing the attractiveness of Overland as a target.  Based on 2012 calendar year revenue consensus of $60 million, 33.7% gross margin (most recently announced quarter), and $35 million of cost synergies (the acquirer absorbing zero operating expenses) the "new" Overland would generate $20 million of operating income equating to operating income multiple range of 6x-12x based on the acquisition revenue multiple range of 2x-4x.  This is extremely attractive.

We, therefore, believe the high end valuation compares favorably to historical transactions.  Adding to the conviction is that the analysis EXCLUDES the revenue synergies a larger sales force would realize AND the gross margin expansion a larger company's manufacturing and sourcing scale would drive.  The analysis also EXCLUDES the value of the patent portfolio, which is potentially significant.

We applaud the Company's November 2011 settlement with Dell and IBM in its patent infringement lawsuit against BDT, IBM, and Dell.  We also applaud the Company's announcement in June 2012 claiming infringement of one or both of the Overland patents ('766 and '581) involved in the International Trade Commission ("ITC") case against BDT.  Those lawsuits name as defendents: Quantum, Spectra Logic, PivotStor, Qualstar, Tandberg, Tandberg Data, and Venture Corporation. 

We believe the combination of the settlements with two of the largest global technology companies plus the ITC's recent determination of '766 and '581 patent validity that Overland possesses a strong case against all defendents in US District Court of Southern California.  The breadth of the valid patents equates to significant monetization potential especially with patent '766 (partitioning) spanning the entire storage industry. 

Even though Overland's current market capitalization provides no value to potential settlements and royalties, we believe all industry players would be interested in owning these patents.  There is tremendous competitive value for a large strategic acquirer to own valid patents that span the storage industry.  We believe the acquirer would have greater litigation experience and financial wherewithal to strongly pursue the pending cases and conceivably add additional defendants.  It should also be clear that all current defendents could be buyers of the patents or interested in acquiring Overland.  Any value gained by an acquirer from Overland's patent portfolio would increase the acquirer's return, which adds to our belief that the high end valuation compares favorably to historical transactions.

It should be clear that right now is a very compelling time for the Board of Directors to maximize shareholder value and that Overland is a very compelling target to many strategic acquirers.  We request that Overland immediately explore strategic alternatives to maximize shareholder value.

We are available to discuss our views further at 212-994-6240.

Sincerely,

Steven J. Brown
Portfolio Manager

(1) Seeking Alpha.  February 28, 2012

(2) As per Company news releases and public filings.  $3.8 million announced October 30, 2009 at $2.10; $12.0 million announced February 22, 2010 at $2.64; $4.2 million announced November 12, 2010 at $1.25; $3.0 million announced December 21, 2010 for ownership interest in the BDT / IBM / DELL litigation; $15.2 million announced March 16, 2011 at $1.77; $6.4 million announced March 22, 2012 at $2.00

(3) 6,625,904 votes FOR and 6,187,528 votes WITHHOLD.  As per Form 8-K dated June 18, 2012

CONTACT: Steven Brown 212-994-6240

 

SOURCE Pergament Advisors, LLC

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

@ThingsExpo Stories
We’ve worked with dozens of early adopters across numerous industries and will debunk common misperceptions, which starts with understanding that many of the connected products we’ll use over the next 5 years are already products, they’re just not yet connected. With an IoT product, time-in-market provides much more essential feedback than ever before. Innovation comes from what you do with the data that the connected product provides in order to enhance the customer experience and optimize busi...
Manufacturers are embracing the Industrial Internet the same way consumers are leveraging Fitbits – to improve overall health and wellness. Both can provide consistent measurement, visibility, and suggest performance improvements customized to help reach goals. Fitbit users can view real-time data and make adjustments to increase their activity. In his session at @ThingsExpo, Mark Bernardo Professional Services Leader, Americas, at GE Digital, will discuss how leveraging the Industrial Interne...
The increasing popularity of the Internet of Things necessitates that our physical and cognitive relationship with wearable technology will change rapidly in the near future. This advent means logging has become a thing of the past. Before, it was on us to track our own data, but now that data is automatically available. What does this mean for mHealth and the "connected" body? In her session at @ThingsExpo, Lisa Calkins, CEO and co-founder of Amadeus Consulting, will discuss the impact of wea...
Increasing IoT connectivity is forcing enterprises to find elegant solutions to organize and visualize all incoming data from these connected devices with re-configurable dashboard widgets to effectively allow rapid decision-making for everything from immediate actions in tactical situations to strategic analysis and reporting. In his session at 18th Cloud Expo, Shikhir Singh, Senior Developer Relations Manager at Sencha, will discuss how to create HTML5 dashboards that interact with IoT devic...
Whether your IoT service is connecting cars, homes, appliances, wearable, cameras or other devices, one question hangs in the balance – how do you actually make money from this service? The ability to turn your IoT service into profit requires the ability to create a monetization strategy that is flexible, scalable and working for you in real-time. It must be a transparent, smoothly implemented strategy that all stakeholders – from customers to the board – will be able to understand and comprehe...
Artificial Intelligence has the potential to massively disrupt IoT. In his session at 18th Cloud Expo, AJ Abdallat, CEO of Beyond AI, will discuss what the five main drivers are in Artificial Intelligence that could shape the future of the Internet of Things. AJ Abdallat is CEO of Beyond AI. He has over 20 years of management experience in the fields of artificial intelligence, sensors, instruments, devices and software for telecommunications, life sciences, environmental monitoring, process...
The IoTs will challenge the status quo of how IT and development organizations operate. Or will it? Certainly the fog layer of IoT requires special insights about data ontology, security and transactional integrity. But the developmental challenges are the same: People, Process and Platform. In his session at @ThingsExpo, Craig Sproule, CEO of Metavine, will demonstrate how to move beyond today's coding paradigm and share the must-have mindsets for removing complexity from the development proc...
A critical component of any IoT project is the back-end systems that capture data from remote IoT devices and structure it in a way to answer useful questions. Traditional data warehouse and analytical systems are mature technologies that can be used to handle large data sets, but they are not well suited to many IoT-scale products and the need for real-time insights. At Fuze, we have developed a backend platform as part of our mobility-oriented cloud service that uses Big Data-based approache...
trust and privacy in their ecosystem. Assurance and protection of device identity, secure data encryption and authentication are the key security challenges organizations are trying to address when integrating IoT devices. This holds true for IoT applications in a wide range of industries, for example, healthcare, consumer devices, and manufacturing. In his session at @ThingsExpo, Lancen LaChance, vice president of product management, IoT solutions at GlobalSign, will teach IoT developers how t...
Digital payments using wearable devices such as smart watches, fitness trackers, and payment wristbands are an increasing area of focus for industry participants, and consumer acceptance from early trials and deployments has encouraged some of the biggest names in technology and banking to continue their push to drive growth in this nascent market. Wearable payment systems may utilize near field communication (NFC), radio frequency identification (RFID), or quick response (QR) codes and barcodes...
SYS-CON Events announced today that Peak 10, Inc., a national IT infrastructure and cloud services provider, will exhibit at SYS-CON's 18th International Cloud Expo®, which will take place on June 7-9, 2016, at the Javits Center in New York City, NY. Peak 10 provides reliable, tailored data center and network services, cloud and managed services. Its solutions are designed to scale and adapt to customers’ changing business needs, enabling them to lower costs, improve performance and focus inter...
We're entering the post-smartphone era, where wearable gadgets from watches and fitness bands to glasses and health aids will power the next technological revolution. With mass adoption of wearable devices comes a new data ecosystem that must be protected. Wearables open new pathways that facilitate the tracking, sharing and storing of consumers’ personal health, location and daily activity data. Consumers have some idea of the data these devices capture, but most don’t realize how revealing and...
The demand for organizations to expand their infrastructure to multiple IT environments like the cloud, on-premise, mobile, bring your own device (BYOD) and the Internet of Things (IoT) continues to grow. As this hybrid infrastructure increases, the challenge to monitor the security of these systems increases in volume and complexity. In his session at 18th Cloud Expo, Stephen Coty, Chief Security Evangelist at Alert Logic, will show how properly configured and managed security architecture can...
The IETF draft standard for M2M certificates is a security solution specifically designed for the demanding needs of IoT/M2M applications. In his session at @ThingsExpo, Brian Romansky, VP of Strategic Technology at TrustPoint Innovation, will explain how M2M certificates can efficiently enable confidentiality, integrity, and authenticity on highly constrained devices.
There is an ever-growing explosion of new devices that are connected to the Internet using “cloud” solutions. This rapid growth is creating a massive new demand for efficient access to data. And it’s not just about connecting to that data anymore. This new demand is bringing new issues and challenges and it is important for companies to scale for the coming growth. And with that scaling comes the need for greater security, gathering and data analysis, storage, connectivity and, of course, the...
So, you bought into the current machine learning craze and went on to collect millions/billions of records from this promising new data source. Now, what do you do with them? Too often, the abundance of data quickly turns into an abundance of problems. How do you extract that "magic essence" from your data without falling into the common pitfalls? In her session at @ThingsExpo, Natalia Ponomareva, Software Engineer at Google, will provide tips on how to be successful in large scale machine lear...
You think you know what’s in your data. But do you? Most organizations are now aware of the business intelligence represented by their data. Data science stands to take this to a level you never thought of – literally. The techniques of data science, when used with the capabilities of Big Data technologies, can make connections you had not yet imagined, helping you discover new insights and ask new questions of your data. In his session at @ThingsExpo, Sarbjit Sarkaria, data science team lead ...
SYS-CON Events announced today that Ericsson has been named “Gold Sponsor” of SYS-CON's @ThingsExpo, which will take place on June 7-9, 2016, at the Javits Center in New York, New York. Ericsson is a world leader in the rapidly changing environment of communications technology – providing equipment, software and services to enable transformation through mobility. Some 40 percent of global mobile traffic runs through networks we have supplied. More than 1 billion subscribers around the world re...
In his session at @ThingsExpo, Chris Klein, CEO and Co-founder of Rachio, will discuss next generation communities that are using IoT to create more sustainable, intelligent communities. One example is Sterling Ranch, a 10,000 home development that – with the help of Siemens – will integrate IoT technology into the community to provide residents with energy and water savings as well as intelligent security. Everything from stop lights to sprinkler systems to building infrastructures will run ef...
You deployed your app with the Bluemix PaaS and it's gaining some serious traction, so it's time to make some tweaks. Did you design your application in a way that it can scale in the cloud? Were you even thinking about the cloud when you built the app? If not, chances are your app is going to break. Check out this webcast to learn various techniques for designing applications that will scale successfully in Bluemix, for the confidence you need to take your apps to the next level and beyond.