Will a Buyer Save Openwave From More & More Bad News?

How do you stave off horriffic news?  Announce you are for sale.

Openwave (OPWV) is not a name that has been without controversy, and its shares are up almost 6% at $9.40 pre-market since it is exploring a sale of the company.  It is a former high-flyer that turned into Icarus after earnings warnings and options backdating charges.  The company is replacing David Peterschmidt with Robert Vrij as President & CEO effective immediately.  The company has lowered guidance, which it blames on a product transition: revenues for the quarter are now expected to be $65-70 million versus estimates of $87.5 million.  The company has been delivered with 4 million shares in its buyback plan as part of its $100 million it paid to Merrill Lynch for the total plan.

The company has hired Merrill Lynch to enhance shareholder value, including a possible sale of the company.  Maybe someone else can garner value where the company hasn’t.  The long and short of the matter is that the company has some extremely valuable mobile communications service offerings that would make it an ideal portfolio company.  The flip side is that if you look at the number of mobile players in the space you will realize instantly that the pool of carrier-class customers has been shrinking steadily.

This is one we have wanted to add to the BAIT SHOP for takeover candidates in the past on numerous occasions, but the valuations and shrinking customer pool were always insurmountable factors to ever taking it any higher than a watch list.

The one company that we do think could snap this up and instantly have all of the affiliate and clkient relationships on a wider base is Google (GOOG).  The problem is that now Google may be doing its own phone.  Will it or won’t it?  If not there are probably about 12 other companies that could be interested.  For a private equity firm to want it, the company would most likely need to be profitable and this one is now back in the red.

Jon C. Ogg
March 23, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.