Bridgewater avoids shareholder fight

An Ottawa maker of personalization applications for wireless carriers has dodged what could have been a controversial special shareholder meeting this month when a U.S. fund would have tried to take over the board of directors.

To avoid the confrontation, publicly-traded Bridgewater Systems has added the managing director of investor Crescendo Partners, Greg Monahan, immediately to its board and will add senior vice-president David Sgro as part of a joint slate when Bridgewater holds its annual general meeting May 26.

As a result, Crescendo CEO Eric Rosenfeld has withdrawn his demand for a special meeting to replace five of the eight directors with his own people. The new board will have 10 persons.

Rosenfeld, whose company is one of the largest Bridgewater shareholders with 12 per cent of the firm, couldn’t be reached for comment, but he has told other news media that he wanted the company sold to a bigger business.

The agreement avoids a confrontation between two of the company’s biggest shareholders – Rosenfeld and Ottawa entrepreneur Terry Matthews, a long time Bridgewater investor and chairman of the board. “We believe this represents an appropriate resolution as it avoids the significant distraction to the company associated with a proxy contest while adding further depth to our Board,” Matthews, said in a news release. “Bridgewater has performed strongly in recent years, and we look forward to working with the new directors and benefiting from their experience as we continue to build shareholder value.”

This is not the first time Rosenfeld has pushed his way onto the board of a Canadian company. In 1999, upset over the performance of Call-Net Enterprises (which owned Sprint Canada), he and two other Crescendo executives got on its board. In 2005 Call-Net was bought by Rogers Communications for $330 million.

On a Friday conference call with financial analysts, when he announced Bridgewater’s first quarter numbers, CEO Ed Ogonek said he’s “very pleased with this resolution, and believe this is an appropriate resolution and solution for all of our shareholders. We now have increased depth on our board and look forward to the contributions from the new directors.”

In an interview after the call David Sharpley, the company’s senior vice-president of marketing and product management said the board change has not meant a change in the company’s direction or strategy. “Are we putting the company up for sale? Absolutely not,” he said. He also noted that regardless of where they come from directors have a duty to all shareholders.

In a note to investors, National Bank Financial analyst Kris Thompson said the board deal will avoid a proxy fight would be a “major management distraction.” With Crescendo’s oversight investors should be less worried the company will make “an unnecessary acquisition,” he wrote. Crescendo could also be helpful in adding Bridgewater on the NASDAQ exchange to its existing listing on the Toronto Stock Exchange.

Rosenfeld’s frustration may be around Bridgewater’s shares, which dipped in November to $1.75. In 2008 it had net earnings of $2.8 million on sales of $44.2 million.

By last month the stock was over $4. After Friday’s quarterly results it was in the $4.20 range.

Bridgewater makes network access control products for carriers that manage authentication, authorization and accounting servers. Its leading products include Network Policy Controller and its new integrated Widespan suite.

The largest buyer of its 120 carrier customers is Verizon Wireless in the U.S. Telecom equipment maker Alcatel-Lucent, with whom it has a reseller and an OEM agreement, is among the top five. Other carriers include Bell Canada.

Just over 60 per cent of its sales are to CDMA carriers, a ratio it is trying to change as much of the world is dominated by GSM carriers.

As for the Q1 results, Bridgewater pulled in $14 million, a 64 per cent increase over the same period in 2008. Net earnings were $2.9 million, compared to a net loss of $700,000 for the year ago quarter.

The company said the revenue increase was mainly due to the delivery of the Policy Controller solution with an unnamed Tier 1 mobile service provider and the delivery of the WideSpan solution to Verizon (revenue from that $30 million installation will continue into next year) and Cricket Communications of San Diego.

In all Bridgewater added six new customers in the quarter, four of which are from the EMEA (Europe/Middle East/Africa) area. The performance reflects the increase in wireless data revenue that carriers around the world are reporting despite the recession, Sharpley said in an interview.

As a result, Bridgewater is forecasting slightly more optimistic revenue of between $54 million and $58 million this year, representing annual growth of between 22 and 31 per cent, and net earnings of between $7 million and $9 million.

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