While Bridgewater Systems would prefer to be loved for its fundamentals, the tech company is becoming accustomed to drawing investors with corporate intrigue.
Bridgewater is in the wireless software business, and sports a $240-million market capitalization. Its backers include tech billionaire Terry Matthews. Earlier this year, the company was targeted by money manager Crescendo Partners, with a proxy fight ending peacefully and Crescendo executives joining the Bridgewater board.
As this boardroom activity played out, Bridgewater posted increasingly strong results. The company is winning new telecom clients and rolling out a new business model that draws more recurring revenue from existing customers, a list that includes most of the major global phone companies. The stock is up 241 per cent over the past 12 months.
Now National Bank Financial is speculating that Ottawa-based Bridgewater could be on the receiving end of a bid from Nokia Siemens Networks.
While the concept isn't new - Bridgewater has long been seen as a potential target - National Bank Financial analyst Kris Thompson is taking an aggressive view, predicting a bidding war is in the offing.
"We've been suggesting that Bridgewater would be an acquisition target of [Nokia Siemens Networks] for many months for both its technology and key customer Verizon Wireless," Mr. Thompson said yesterday in a report. He then added: "Also recall that we've suggested that Cisco would likely defend its evolved packet core position by acquiring Bridgewater if Nokia Siemens Networks were to bid for the company."
National Bank Financial has a $13 target price on Bridgewater, and an "outperform" ranking.
An all-too-common story
All the frustrations that come with buying small-cap Canadian tech stocks are neatly illustrated in the plan to go private announced recently by Guest-Tek Interactive Entertainment Ltd.
This hotel broadband network supplier went public back in 2004 by selling shares at $10.25 each, on the back of a story that featured 200-per-cent-plus annual revenue growth and 100-per-cent-plus profit growth. BMO Nesbitt Burns led the Guest-Tek initial public offering, and the stock's best day was its first day on the TSX.
Guest-Tek failed to sustain strong growth, and the $44.6-million IPO never attracted much of a following. A dreary but familiar trend developed: There was little buying and selling, and the stock price started to slide. The cheaper Guest-Tek got, the less it appealed to institutions, which need to establish a meaningful stake in a company to make it worth following. This became a classic orphan stock, neglected and unloved.
Over the past year, Guest-Tek president Arnon Levy built his stake in the company by purchasing stock on the open market at far less than the IPO price. On Friday, Mr. Levy announced plans to fold the public market tent.
Mr. Levy offered to purchase all the remaining outstanding shares for 50 cents each - twice the price this stock commanded prior to the bid.
Guest-Tek shares had touched lows of 10 cents in recent months. The takeover offer is worth $8-million. A special committee of Guest-Tek shareholders received a fairness opinion from accounting firm Meyers Norris Penny that valued the stock at between 49 cents and 52 cents each. In justifying the 50-cent bid from the boss, Guest-Tek said in a press release: "Currently, less than 30 per cent of the common shares are widely held by the public and are thinly traded on the TSX."
It's a disappointing ending to what seemed a promising tech story, and an all-too-common story for small-cap plays on domestic public markets.
See Andrew Willis's Streetwise Blog at ReportonBusiness.com
© The Globe and Mail
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