ADIC Courts Overland

Tape library rivals Advanced Digital Information Corp. (Nasdaq: ADIC) and Overland Storage Inc. (Nasdaq: OVRL) are dating, and it sounds as if at least one side is getting serious.

ADIC has gobbled up nearly $10 million in Overland stock since August 4, giving it 9.28 percent of the companys shares. The two discussed merger talks as recently as Thursday, according to an SEC statement filed by ADIC today.

According to the filing, ADIC met with Overland CEO Chris Calisi last January, and they signed a confidentiality letter to consider a possible transaction. ADIC reps met with Calisi again Thursday “to inform him of the purchase of the shares” -- in case he didn’t know -- and “to discuss a possible business combination.” The filing also said there are no contracts or agreements in place between the two.

The filing said ADIC considers Overland a good investment opportunity “as well as a possible opportunity to facilitate strategic consolidation within the data-storage industry.”

Neither company had much to add today. “There’s no master plan,” ADIC corporate marketing director Steve Whitner said when queried about a pending acquisition.Overland corporate communications directory Cynthia Bond said: “We have no comment until we put out an official release." Okay. Is that release in the works? “No comment.”

ADIC began buying shares August 4, the day after Overland announced it was losing its OEM deal with Hewlett-Packard Co. (NYSE: HPQ), which accounts for most of its revenue (see Overland Loses HP OEM Deal). ADIC bought 500,000 shares of Overland that day. It bought more each business day through August 16, two days before the meeting with Calisi. The buying spree gave ADIC 1,303,842 shares of Overland, purchased at prices ranging from $6.70 to $7.85 per share for a total investment of $9,488,198.

Calisi has spent a lot of time talking about Overland’s future lately without giving any indication that he expects his firm to be acquired. Indeed, Overland likes its role as acquirer: It purchased data protection software vendor Zetta Systems August 8 for $9 million as part of its strategy to bump up its disk business (see Overland Overtakes Zetta and Overland: Bring On NetApp).

It makes sense for Overland to listen to any serious offers. It lost $924,000, or $0.07 per share, last quarter on revenue of $55.4 million, and Calisi forecasts a loss of $0.10 per share in the fiscal year that began in July. He foresees a return to profitability the following year (see Overland Reports Earnings).

The question is, what does ADIC see in Overland? Losing HP strips Overland of most of its current revenue, and it’s not as if ADIC will be eliminating a fierce competitor. Overland and ADIC compete a bit on lower-end libraries, but ADIC considers HP, IBM Corp. (NYSE: IBM), Quantum Corp. (NYSE: DSS), and Storage Technology Corp. (StorageTek) (NYSE: STK) its primary competition.“Without HP, Overland’s not nearly as compelling a buy,” says analyst Steve Berg of Punk Ziegel & Co. “I’m not sure what the value is beyond consolidation.”

Overland’s stock price rose 26.3 percent to $8.45 by midafternoon after the filing, while ADIC’s ticked up 1.04 percent to $8.72.

— Dave Raffo, Senior Editor, Byte and Switch