Fund Makes Case for Openwave Offer

Harbinger Capital cites shareholder selloff.
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After months of being stymied in taking a plan to grab a majority stake in

Openwave Systems


directly to shareholders,

Harbinger Capital

took its case public Thursday.

The hedge fund, which has made a partial tender offer that will give it a 62% stake, will announce within the next two weeks its candidates for the board, Harbinger Capital managing director Howard Kagan said Thursday on a conference call.

Harbinger, which now owns 13% of Openwave's outstanding shares, also announced it had filed an appeal of a Delaware state court ruling that validated the most recent elections to the board of directors. The board had invalidated Harbinger's nominees on a technicality.

"Our director nominee at the last board meeting received more votes than any other candidate -- over 56% of the stockholder vote," Harbinger said in a statement. "We believe he should be on the board."

On Monday, Redwood City, Calif.-based Openwave's board recommended that shareholders reject the tender offer while also saying it was cutting its workforce by 20%.

Kagan said shareholders indicated a lack of confidence in the board's decision, selling off the stock, which fell nearly 16% on Tuesday.

Harbinger views the tender offer as a "recapitalization," Kagan said.

"We got a clear sense that shareholders did not want to see" an outright sale of Openwave that would leave them without a stake. Most shareholders see upside potential in Openwave's technology and want to retain their stakes, he added.

By offering shareholders the opportunity to liquidate part of their stake while retaining some equity, they will "retain significant upside, and they won't feel the company was purchased at what they feel is a low price,

considering future prospects," Kagan said.

"On a positive note, the company did take some of the suggestions we'd made," Kagan said, referring to Openwave's announcement Monday that it planned to pay out $100 million in a $1.20-a-share special dividend.

But Kagan took issue with Openwave's plan to cut its workforce by 20% -- before shareholders have taken a position on the tender offer. "I can't be sure ... that it's going to involve cuts in the right places," he said. "If we get an overwhelming response, we hope they will allow the new management team to make thoughtful decisions of what those cuts should be."

If successful, Harbinger would merge Openwave with one of its technology partners, Chicago-based

BridgePort Networks

, and expects a new board to appoint its CEO, Mike Mulica, to lead the combined company.

A merger "allows for convergence of mobile voice and data offerings with the PC," Mulica said. The combined company would also be in a position to help telecom operators move to a multimedia subsystem known as IMS, he added.

Openwave did not respond to a request for comment late Thursday and had previously declined to comment.