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Iomega Finds Its Niche Reselling Online Security Services From Postini

Iomega Inc., a San Diego maker of data-storage devices, may have found a winning strategy for diversifying its business.

Following an acquisition last year of CSCI, a company that provides managed software services to small- and medium-sized businesses, Iomega entered into a partnership with Postini, a provider of security protection for e-mail and instant messaging systems to major corporations.

Essentially, Iomega is taking the best security services offered by Postini to Fortune 100 companies and making it available to small- and medium-sized businesses at a price they can afford.

For example, the company said a small company with 30 employees could obtain the services for $30 per user per year.

“We’re very excited about this relationship and what it means for small and medium businesses that can now benefit from communications security and compliance solutions that used to be beyond their reach,” said Chief Executive Officer Jonathan Huberman.

Huberman, who replaced resigned CEO Werner Heid in February 2006, sounded excited about the prospects for enhanced business from its software-as-service model, but couldn’t provide estimates on added revenue. By next year, the deals should result in positive impacts on its bottom line, he said.

Looking at Iomega’s recent financial results, Huberman deserves kudos. The company was bleeding red ink for seven of its past eight years after sales of the Zip drive, its main product, dwindled as new computers, starting in the late 1990s, carried larger storage capacities.

“We fixed our core business and now we’re looking at achieving our second goal,” said Huberman.

That goal is finding a way to leverage Iomega’s assets, particularly its distribution channels, to increase sales of managed security services such as e-mail and anti-spam protection. The company that once focused on making data-storage disks had revenue of $1.7 billion in 1998, but restructured when the bottom fell out of the market for disk drives.

After years of losses, Iomega appears to be heading in the right direction. It reported net profits for three consecutive quarters, and for the most recent quarter ended April 1 it had net income of $1.1 million on revenue of $76 million. That compared with a net loss of $4.2 million on revenue of $59 million for the first quarter of 2006.

Thanks to the improved financials, Iomega’s stock is also rising. After trading most of last year below $3, shares began climbing in the second half. For most of 2007 it’s been above $3.50. Traded on the New York Stock Exchange under IOM, shares gained more than 67 percent during the year. It closed $4.37 on June 22, not far off its prior 52-week high of $4.53.

“We definitely turned the corner, but the problem is there’s always more bumps ahead,” said Huberman.

Iomega has 250 employees, including 60 at its headquarters.

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Hedge Fund Buys Big Stake In DJO:

MMI Investments LLP, a New York-based hedge fund, acquired a 9.4 percent stake in DJO Inc., a Vista maker of orthopedic devices, in a series of purchases made starting in May, according to a recent securities filing.

The hedge fund, along with partner MCM Capital Management, formerly known as Millbrook Capital Management, acquired 2.2 million shares of DJO starting in early May when the stock was trading at about $34, and concluded in late June when it was about $39. On June 22, DJO closed at $41.34, up $2.29 from the prior day’s closing price.

DJO spokesman Mark Francois said Millbrook Capital Management, whose principal is Jerome Lande and the same principal as MMI, invested in DJO in 2002.

“They know our company very well and the industry very well, and they also have a lot of faith in our management,” Francois said.

MMI said in the same filing that it intends to own more than 14.9 percent of DJO, and to file a request to waive the waiting period required by the Hart Scott Rodino Antitrust Improvement Act so that it could acquire more DJO shares.

The hedge fund began buying DJO shares soon after DJO Inc. announced first-quarter earnings that did not meet Wall Street expectations, which caused the stock to decline by 13 percent.

DJO, traded on the New York Stock Exchange, was at about $37 a year ago, then went on a ride to above $44 late last year, but had been on the downswing until recently.

Another DJO investor, Black Rock Inc., acquired 3.2 million shares in June, meaning it holds 13.6 percent of the company.

The largest holder of DJO continues to be Fidelity Investments, with 14.9 percent of the stock.

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Accredited Sought By Seven Buyers:

Before agreeing to be sold to a Texas private equity firm, Lone Star Funds, for $15.10 per share last month, Accredited Home Lenders Inc., a subprime mortgage bank, disclosed it obtained interest from seven suitors, according to a securities filing last month.

The troubled lender said that it had considered a number of alternatives, including possible bankruptcy protection, because of its dire liquidity situation.

Accredited, which specializes in home loans to borrowers with tainted credit histories, was profitable until late last year when it, along with dozens of other subprime lenders, reported a surge of mortgage delinquencies. Institutional owners of these loans were demanding the originators take back the problem loans, which caused a drain on all the lenders’ cash reserves.

Further compounding the situation was the fallout on the market that heavily discounted price investors were paying for new subprime home loans. The result was dozens of subprime lenders went out of business or were acquired at bargain prices.

Before Lone Star conducted its due diligence on Accredited, it said it was prepared to pay $17 per share, but after taking a closer look at Accredited’s books, the fund offered $13.25 per share. It later increased that to $14.10 per share.

When Accredited told Lone Star that another party, identified as Bidder X, was bidding $13.80 per share, Lone Star boosted its bid to $15.10 per share, or $400 million on an aggregate basis. The company accepted the price June 3.

The tender offer agreement calls for a majority of Accredited shareholders to sell Lone Star their shares by July 17, although the deadline date can be extended.

In other disclosures, Lone Star asked Accredited to pay for expenses connected with its due diligence investigation. Accredited agreed, but only up to $1.5 million.

The total estimated cost for the sale is $440 million, according to the securities filing.

In other news, Nasdaq approved extending Accredited’s stock listing despite earlier warnings that it was in danger of being delisted because it hasn’t filed its annual or first-quarter reports.

The listing is contingent on Accredited filing its annual report by Aug. 1, and its first-quarter report by Aug. 19.

But assuming Lone Star, a $3.2 billion private equity firm, assumes control of the company this month, the company will no longer need to have the stock listing.

Accredited stock was trading at $13.92 on June 25, and has ranged from $3.77 to $49.10 in the past 52 weeks.

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Inverness Completes Biosite Purchase:

Inverness Medical Innovations Inc. said it completed its tender offer for nearly all the shares of Biosite Inc., a local maker of medical diagnostic devices for heart disease.

Massachusetts-based Inverness said it acquired 87 percent of Biosite’s shares for $92.50 per share. Combined with the 5 percent in stock already owned, Inverness held 92 percent of the shares outstanding. Inverness said it was making another offering for the remaining shares at the same price that expires June 28.

Following the transaction, Biosite, with $300 million in annual sales and 1,100 employees, will become a subsidiary of Inverness.

Inverness’ purchase came after a bidding war with another medical device manufacturer, Beckman Coulter Inc. of Fullerton, which first made an offer of $85 per share in March for Biosite’s outstanding shares. Following that, in April, Inverness made an unsolicited offer of $90 per share for Biosite, which its board then had to consider.

Then Beckman came back and matched the $90 offer, but that was trumped by Inverness in May when it upped its bid to $92.50, or an aggregate price of $1.6 billion.

As part of the transaction, Inverness purchased senior subordinated notes due in 2010 for $164 million. Inverness said it financed the acquisition with cash and a $1 billion loan package from General Electric Capital Corp. and UBS Securities LLC.

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Nitches Inc. Conducts Private Equity Financing:

Nitches Inc., a San Diego maker of apparel, issued $3.15 million in subordinated convertible debentures and 577,500 stock warrants to two unaffiliated institutional investors, resulting in net proceeds of $2.95 million, the company said June 22.

The financing increased the company’s working capital and allows it to take advantage of strategic opportunities, should they arise, said CEO Steve Wyandt.

The interest on the debentures was 12 percent annually, while the warrants carry a conversion price of $4.12 per share.

For the first half of its fiscal year that ended Feb. 28, Nitches reported net income of $798,000 on revenue of $49.7 million, compared with net income of $565,000 on revenue of $27 million.

Shares of Nitches, traded under NICH on Nasdaq, closed at $3.80 on June 22, and have ranged from $3.48 to $9.38 in the past 52 weeks.

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Ticker Takes:

Document Sciences Inc. purchased 424,269 shares of its common stock at $6.50 for a total of $2.75 million. The amount was 9.7 percent of the stock outstanding. Sempra Energy was said to be negotiating on the sale of its commodities unit, but declined comment. Ashworth Inc. lost $2.5 million on revenue of $60 million. … Leap Wireless International Inc. launched its Cricket cellular phone service in the North Carolina cities of Raleigh, Durham and Chapel Hill.

Send any news of locally based public companies to Mike Allen via e-mail at


. He can be reached at (858) 277-6359.


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