Welcome!

Websphere Authors: ITinvolve Blog, Trevor Parsons, Pat Romanski, Elizabeth White, Carmen Gonzalez

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
"People are a lot more knowledgeable about APIs now. There are two types of people who work with APIs - IT people who want to use APIs for something internal and the product managers who want to do something outside APIs for people to connect to them," explained Roberto Medrano, Executive Vice President at SOA Software, in this SYS-CON.tv interview at Cloud Expo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Performance is the intersection of power, agility, control, and choice. If you value performance, and more specifically consistent performance, you need to look beyond simple virtualized compute. Many factors need to be considered to create a truly performant environment. In his General Session at 15th Cloud Expo, Harold Hannon, Sr. Software Architect at SoftLayer, discussed how to take advantage of a multitude of compute options and platform features to make cloud the cornerstone of your online presence.
SYS-CON Media announced that Splunk, a provider of the leading software platform for real-time Operational Intelligence, has launched an ad campaign on Big Data Journal. Splunk software and cloud services enable organizations to search, monitor, analyze and visualize machine-generated big data coming from websites, applications, servers, networks, sensors and mobile devices. The ads focus on delivering ROI - how improved uptime delivered $6M in annual ROI, improving customer operations by mining large volumes of unstructured data, and how data tracking delivers uptime when it matters most.
Cultural, regulatory, environmental, political and economic (CREPE) conditions over the past decade are creating cross-industry solution spaces that require processes and technologies from both the Internet of Things (IoT), and Data Management and Analytics (DMA). These solution spaces are evolving into Sensor Analytics Ecosystems (SAE) that represent significant new opportunities for organizations of all types. Public Utilities throughout the world, providing electricity, natural gas and water, are pursuing SmartGrid initiatives that represent one of the more mature examples of SAE. We have s...
Since 2008 and for the first time in history, more than half of humans live in urban areas, urging cities to become “smart.” Today, cities can leverage the wide availability of smartphones combined with new technologies such as Beacons or NFC to connect their urban furniture and environment to create citizen-first services that improve transportation, way-finding and information delivery. In her session at @ThingsExpo, Laetitia Gazel-Anthoine, CEO of Connecthings, will focus on successful use cases.
The Internet of Things will greatly expand the opportunities for data collection and new business models driven off of that data. In her session at @ThingsExpo, Esmeralda Swartz, CMO of MetraTech, discussed how for this to be effective you not only need to have infrastructure and operational models capable of utilizing this new phenomenon, but increasingly service providers will need to convince a skeptical public to participate. Get ready to show them the money!
DevOps Summit 2015 New York, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that it is now accepting Keynote Proposals. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long development cycles that produce software that is obsolete at launch. DevOps may be disruptive, but it is essential.
Almost everyone sees the potential of Internet of Things but how can businesses truly unlock that potential. The key will be in the ability to discover business insight in the midst of an ocean of Big Data generated from billions of embedded devices via Systems of Discover. Businesses will also need to ensure that they can sustain that insight by leveraging the cloud for global reach, scale and elasticity.
“With easy-to-use SDKs for Atmel’s platforms, IoT developers can now reap the benefits of realtime communication, and bypass the security pitfalls and configuration complexities that put IoT deployments at risk,” said Todd Greene, founder & CEO of PubNub. PubNub will team with Atmel at CES 2015 to launch full SDK support for Atmel’s MCU, MPU, and Wireless SoC platforms. Atmel developers now have access to PubNub’s secure Publish/Subscribe messaging with guaranteed ¼ second latencies across PubNub’s 14 global points-of-presence. PubNub delivers secure communication through firewalls, proxy ser...
The industrial software market has treated data with the mentality of “collect everything now, worry about how to use it later.” We now find ourselves buried in data, with the pervasive connectivity of the (Industrial) Internet of Things only piling on more numbers. There’s too much data and not enough information. In his session at @ThingsExpo, Bob Gates, Global Marketing Director, GE’s Intelligent Platforms business, to discuss how realizing the power of IoT, software developers are now focused on understanding how industrial data can create intelligence for industrial operations. Imagine ...
The 3rd International Internet of @ThingsExpo, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that its Call for Papers is now open. The Internet of Things (IoT) is the biggest idea since the creation of the Worldwide Web more than 20 years ago.
The true value of the Internet of Things (IoT) lies not just in the data, but through the services that protect the data, perform the analysis and present findings in a usable way. With many IoT elements rooted in traditional IT components, Big Data and IoT isn’t just a play for enterprise. In fact, the IoT presents SMBs with the prospect of launching entirely new activities and exploring innovative areas. CompTIA research identifies several areas where IoT is expected to have the greatest impact.
The 3rd International Internet of @ThingsExpo, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that its Call for Papers is now open. The Internet of Things (IoT) is the biggest idea since the creation of the Worldwide Web more than 20 years ago.
The Internet of Things promises to transform businesses (and lives), but navigating the business and technical path to success can be difficult to understand. In his session at @ThingsExpo, Sean Lorenz, Technical Product Manager for Xively at LogMeIn, demonstrated how to approach creating broadly successful connected customer solutions using real world business transformation studies including New England BioLabs and more.
Connected devices and the Internet of Things are getting significant momentum in 2014. In his session at Internet of @ThingsExpo, Jim Hunter, Chief Scientist & Technology Evangelist at Greenwave Systems, examined three key elements that together will drive mass adoption of the IoT before the end of 2015. The first element is the recent advent of robust open source protocols (like AllJoyn and WebRTC) that facilitate M2M communication. The second is broad availability of flexible, cost-effective storage designed to handle the massive surge in back-end data in a world where timely analytics is e...
The Internet of Things will put IT to its ultimate test by creating infinite new opportunities to digitize products and services, generate and analyze new data to improve customer satisfaction, and discover new ways to gain a competitive advantage across nearly every industry. In order to help corporate business units to capitalize on the rapidly evolving IoT opportunities, IT must stand up to a new set of challenges. In his session at @ThingsExpo, Jeff Kaplan, Managing Director of THINKstrategies, will examine why IT must finally fulfill its role in support of its SBUs or face a new round of...
We’re no longer looking to the future for the IoT wave. It’s no longer a distant dream but a reality that has arrived. It’s now time to make sure the industry is in alignment to meet the IoT growing pains – cooperate and collaborate as well as innovate. In his session at @ThingsExpo, Jim Hunter, Chief Scientist & Technology Evangelist at Greenwave Systems, will examine the key ingredients to IoT success and identify solutions to challenges the industry is facing. The deep industry expertise behind this presentation will provide attendees with a leading edge view of rapidly emerging IoT oppor...
"There is a natural synchronization between the business models, the IoT is there to support ,” explained Brendan O'Brien, Co-founder and Chief Architect of Aria Systems, in this SYS-CON.tv interview at the 15th International Cloud Expo®, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
The BPM world is going through some evolution or changes where traditional business process management solutions really have nowhere to go in terms of development of the road map. In this demo at 15th Cloud Expo, Kyle Hansen, Director of Professional Services at AgilePoint, shows AgilePoint’s unique approach to dealing with this market circumstance by developing a rapid application composition or development framework.
There is no doubt that Big Data is here and getting bigger every day. Building a Big Data infrastructure today is no easy task. There are an enormous number of choices for database engines and technologies. To make things even more challenging, requirements are getting more sophisticated, and the standard paradigm of supporting historical analytics queries is often just one facet of what is needed. As Big Data growth continues, organizations are demanding real-time access to data, allowing immediate and actionable interpretation of events as they happen. Another aspect concerns how to deliver ...