Shanghai Phicomm Communication Seeks to Control UTStarcom (UTSI)

December 15, 2015 8:56 AM EST
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Price: $1.42 -2.07%

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UTStarcom (NASDAQ: UTSI) gained pre-market after Shanghai Phicomm Communication filed a 13D showing at 31.7% stake in the company. Shanghai Phicomm Communication said it seeks to acquire control of UTStarcom Holdings.

From the Filing:

The Phicomm Group acquired the Ordinary Shares beneficially owned by them on the date of this Schedule 13D with a view to acquiring control of the Issuer. Depending upon market conditions and other relevant business and legal considerations, the Phicomm Group may, from time to time, acquire additional Ordinary Shares (in the public markets and/or in privately negotiated transactions) and/or dispose of some or all of their Ordinary Shares or cause affiliates to acquire, hold or dispose of Ordinary Shares. (Acquirer’s right to transfer or otherwise dispose of the Issuer’s Ordinary Shares is, however, restricted by the Subscription Agreement. See Item 6, below.)

In furtherance of the Phicomm Group’s intention to acquire control of the Issuer, under the Purchase Agreement (as defined in Item 6, below) pursuant to which the Acquirer purchased the Ordinary Shares, the conditions to Acquirer’s obligation to complete the purchase of the Ordinary Shares included the requirements that (i) each seller of Ordinary Shares under such agreement (or each affiliate of such sellers) that is a director of the Issuer (consisting of Mr. Himanshu H. Shah and Mr. Hong Liang Lu) shall have submitted his resignation from the board of directors of the Issuer, (ii) Mr. William Wong, the Issuer’s Chief Executive Officer, shall have submitted his resignation as a director and Chief Executive Officer of the Issuer, (iii) the Issuer’s board of directors shall have adopted resolutions increasing the total number of directors of the Issuer from six (6) persons to (8) persons, (iv) designees of the Acquirer shall have been appointed to the Issuer’s board of directors to fill the five vacancies caused by such resignations and the increase in the total number of directors, and (v) a designee of the Acquirer shall have been elected or appointed as the Chief Executive Officer of the Issuer. Pursuant to these provisions, Messrs. Shah, Lu and Wong have resigned from the Issuer’s board and Mr. Wong has resigned as the Issuer’s Chief Executive Officer. In addition, the number of directors of the Issuer was increased to eight (8), five designees of the Acquirer -- Messrs. Gu Guoping, Wang Zhonghua and Zheng Min, each of whom is an executive director of Phicomm, Ms. Sun Lijiang, an independent (non-executive) director of Phicomm, and Mr. Tenling Ti, who does not have any position with Phicomm -- have been elected to the Issuer’s board to fill the vacancies so created, and Mr. Tenling Ti will also become the Chief Executive Officer of the Issuer. All of the foregoing matters -- the action taken by the Issuer’s board of directors, the resignations of Messrs. Shah, Lu and Wong, the election of the Acquirer’s designees to the Issuer’s board and the appointment of Mr. Ti as the Issuer’s CEO -- will become effective upon the sellers’ receipt of aggregate payments of US$64,569,626 out of the total purchase price of US$70,439,592 for the Ordinary Shares. Acquirer has paid US$30,000,000 of such amount and, under the Purchase Agreement, payment of US$34,569,626 is due by December 16, 2015. See Item 6. Upon the effectiveness of such actions, the Issuer’s board will consist of eight persons, four of whom Phicomm believes are independent directors under the governance rules of the Nasdaq Stock Market and four of whom are affiliated with either Phicomm or (in the case of Mr. Ti), the Issuer. The eighth director will be Mr. Ti, Phicomm’s designee as Chief Executive Officer of the Issuer. In addition, effective upon the payment of such US$64,569,626, Mr. Gu Guoping, the Chairman of Phicomm, will become Chairman of the Board of the Issuer.

10

The Phicomm Group intends to examine and explore possible approaches to increasing the Issuer’s business volume and coverage around the world, which may involve an examination of possible synergies between the Issuer’s business and Phicomm’s business. As part of this examination, through Phicomm’s Chairman Mr. Gu and their other designees on the Issuer’s Board, the Phicomm Group expects to engage in discussions with the Issuer’s Board of Directors, the Issuer’s management, other significant shareholders of the Issuer and other relevant parties concerning the Issuer and the Phicomm Group’s investment in the Issuer’s securities. The Phicomm Group anticipates that such discussions could include, but would not be limited to, the business, operations, financial condition, governance, management, strategy and future plans of the Issuer as well as any other matters which the Phicomm Group believes could be relevant to preserving and increasing the value of their investment in the Issuer’s Ordinary Shares and efforts to increase shareholder value generally. In this regard, the Subscription Agreement obligates the Acquirer to actively adopt such feasible plans and measures as may be necessary to promote the improvement and appreciation of the Issuer.

The Phicomm Group has not developed specific topics for such discussions or prepared or developed any specific plans or proposals relating to the Issuer, but they believe that possible matters for examination or exploration could include, among other possibilities, acquisitions or business combinations by the Issuer, dispositions of non-performing or non-core business, significant expansion of the Issuer’s sales and marketing efforts in attractive markets where the Issuer does not currently have extensive operations or sales. However, the Phicomm Group cannot predict whether any of the foregoing activities will ultimately result in plans or proposals that would be presented to the Issuer or its board or shareholders, and they have not entered into any contracts or made any commitments with respect to any of the foregoing matters.

Whether the Phicomm Group pursues one or more of the foregoing courses of action or develop any plans or proposals for any of the foregoing matters to the Issuer will depend on their evaluation of numerous factors, including their examination of Issuer’s the business, operations, financial condition, governance, management, strategy and future plans as described above, the market price of the Ordinary Shares, other investment opportunities available to the Phicomm Group, conditions in the securities markets, and economic and industry conditions in China and elsewhere. Except as described herein, the Phicomm Group does not have any plans or proposals which relate to, or could result in, any of the matters referred to in paragraphs (a) through (j), inclusive, of the instructions to Item 4 of Schedule 13D. The Phicomm Group reserves the right, at any time and from time to time, to review or reconsider their position and/or change their purpose and/or formulate plans or proposals with respect to the Issuer and its securities and to take such actions with respect to their investment in the Issuer as they deem appropriate, including, but not limited to, changing their current intentions with respect to any or all of the matters referred to above.

11

As described in Item 6, certain provisions of Acquirer’s corporate documents and the Subscription Agreement may be deemed to provide the Fund with shared dispositive power over the Issuer’s Ordinary Shares. To the extent that the Fund may be deemed a beneficial owner of the Issuer’s shares, the Fund acquired such beneficial ownership for investment, principally to realize a favorable return on its investment in the Acquirer’s ordinary shares, which it believes may be available to it upon exercise of its rights to require Phicomm to repurchase the Acquirer’s shares pursuant to the Subscription Agreement. the Fund does not any presently have any plans or proposals which relate to, or could result in, any of the matters referred to in paragraphs (a) through (j), inclusive, of the instructions to Item 4 of Schedule 13D. The Fund reserves the right, at any time and from time to time, to review or reconsider its position and/or formulate such plans or proposals in the event the Fund realizes on Phicomm HK’s pledge of the Acquirer’s shares to the Fund. See Item 6 for a description of Phicomm’s repurchase obligations with respect to the Acquirer’s shares held by the Fund and Phicomm HK’s pledge of Acquirer’s shares to the Fund.



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