Overland Could Merge Rapidly With Tandberg

Here is an abstract of a SEC filing
published by Overland Storage, Inc.:

On May 15, 2013, Cyrus submitted a non-binding written proposal to the issuer proposing a combination between the Issuer and Tandberg Data in which the Issuer would be the surviving entity. Under the proposal, the issuer’s shareholders would own 50% of the issuer after the combination and Tandberg’s shareholders would own the remaining 50%.

The proposed combination is subject to a number of conditions, including, among other things the satisfactory completion of due diligence and the negotiation and execution of definitive documents with representations, warranties, covenants and conditions typical and appropriate for transactions of this type.

In a letter to Overland president and CEO Eric Kelly from Cyrus Capital Partners L.P. by Stephen C. Freidheim, you can read:

Following our recent discussion, we are pleased to present to you a proposal in regards to a business combination between Tandberg Data (Holdings) Sarl and Overland Storage Inc. We look forward to working with you on a consensual basis to conclude a formal agreement and move forward to implement the transaction. Overland Storage and Tandberg are two companies with complementary structures and culture, and a combination represents a very good strategic and industrial fit.

As you are aware, Cyrus and FBC Holdings Sarl, an affiliate of Cyrus and Tandberg’s shareholder, have been in discussions with you about a business combination between Tandberg and Overland for some period of time. Each party has completed substantial due diligence, has shared financial information and collectively examined the synergies and value creation that could be realized by a combination of the two businesses.

As you are aware, Cyrus Capital Partners, L.P. as investment manager for certain funds which invested in the Overland convertible debenture were required as a result of their shareholding on an if converted basis to file on February 12, 2013 with the SEC on Form 13D certain disclosures relating to those fund’s investment in Overland. There is a requirement to update that filing based on material changes. As a result we will be required to append this letter to the revised filing.

And also in the SEC filing:

Rational for the Transaction

• We wish to reiterate why we believe that a transaction between Tandberg and Overland makes economic and business sense for both parties:
• Substantial cost synergies should facilitate profitability and cash generation post integration and restructuring
• The two companies’ channels and route to market are complementary
• Both companies share a common target market – business users – and a complementary customer base
• Complementary products should drive a greater relevance and share of a customer’s purchases
• Opportunity for additional RDX removable HDD license revenues
• Much larger sales team with far greater geographic and account coverage
• By combining the complementary NAS technology and product portfolio from both companies more markets will be covered allowing for significant increase in revenue
• Geographic expansion for Overland’s product set
• Potentially new opportunities with global OEM accounts
• Stronger marketing organization can provide much greater efficiency and drive demand
• Stronger R&D capabilities to protect and grow existing business as well as develop innovative products for the future
• Tandberg tape automation engineers can provide continuity to the automation business for both companies – This should also protect and enhance the significant service revenue that Overland has created over the years
• Tandberg has a world class manufacturing and integration facility in China
• Greater scale and market presence would provide an opportunity to compete more effectively

Further, despite the fact that FBC will become a significant shareholder in Overland if the transaction is consummated, it is anticipated that the current Overland board will comprise a majority of the directors post-closing and Overland will be the surviving business entity. We continue to have confidence in both the Overland and Tandberg management teams and their ability to run a larger integrated business.

The terms of the proposal are as follows:
Overland would acquire Tandberg on the basis of a merger of equals (i.e., Overland’s shareholders, on a fully diluted basis, would own 50% of Overland after the combination and Tandberg’s shareholders would own the remaining 50%)

In addition, it is anticipated that the transaction may include an opportunity for Overland shareholders to receive cash for a portion of their shareholdings in Overland.

In conclusion, we believe that now is the time to effect a business combination of Overland and Tandberg. Currently Overland is not free cash flow positive and the company is burning cash as it completes its business transition and strategy implementation. A deal with Tandberg will greatly improve both the size and scale of the business and will allow the combined entity, in our opinion, to generate significant free cash flow versus historical performance.

Please confirm that Overland’s board of directors has agreed to this proposal in principal by 12:00 pm (Eastern Standard Time) on May 18, 2013 or this proposal shall automatically terminate and the offer to entertain negotiations with respect to the transaction on the terms set forth herein shall automatically be withdrawn. We reserve all rights with respect to other offers or actions that we may choose to make in relation to Overland. We look forward to entering into consensual discussions with you to move towards final transaction documentation and hope that you will find our proposal constructive. Except for the following paragraph, our proposal set forth herein is non-binding, and is subject to due diligence and the negotiation and execution of definitive transaction documents.
            
Upon acceptance of the proposal, Overland expressly agrees to enter into an exclusivity period with Tandberg for a period of 90 days, during which it shall notify Tandberg of any approach made by a third party with respect to a merger, amalgamation or purchase, or other analogous transactions, for all or a portion of Overland’s shares or assets and an agreement not to negotiate with such parties. If Overland accepts a competing offer or its board recommends that shareholders accept a competing offer with respect to any of the transactions described above during the six months following the date of this letter, Overland agrees to pay FBC Sarl, a break fee equal to $1.5 million and 25% of any value proposed above our proposal.