March Sets Up Poison Pill, Impact on Future Acquistion

March Networks has set up a "Shareholder's Rights Plan," more commonly referred to as a "Poison Pill." Such plans/pills can provide protection or negotiation advantages if or when an acquisition occurs.

According to March, the plan "provide the board of directors of March Networks and the shareholders more time to consider fully any unsolicited take-over bid for the Corporation.  It will also allow more time for the board of directors to pursue other alternatives to maximize shareholder value, if appropriate."

If an acquisition does not meet the plan's definition of a 'permitted bid', existing shareholders would gain the right to buy "shares at a 50 percent discount to the market price at the time." This would simultaneously increase the acquisition cost and benefit existing sharedholders.

March says there is no impending or even known interest in acquisition: "The rights plan has not been adopted in response to any specific proposal to acquire control of the Corporation, nor is the Corporation aware of any such intention."

On the other hand, March Networks is viewed by many we speak with as a prime target for acquisition:

• March's current maket capitalization ($63 Million CAD) is substantially less than revenue ($86 Million CAD) - see financial summary
• March's cash reservers (~$40 Million CAD) are close to its market capitalization ($63 Million CAD) - see balance sheet
• March's stock is down 90% since 2006 ($38.75 per share in February 2006 vs. $3.62 July 2010)
• Despite this, March's appliances are highly regarded for their performance and attractiveness to IT users
• March acquired a solid IP video startup (Cieffe) in 2008 and now has a lineup of IP/MP cameras and VMS software to complement its appliances/recorders

Given its stock price, cash in bank and product lineup, it is quite plausible that the company could enjoy a strong turnaround.

Who would want to acquire March is an interesting question as well. Given the breadth of March's existing portfolio, we think an acquisition by a video surveillance incumbent (NICE, Verint, Honeywell, even Cisco) would be redundant with those companies existing products. However, March could make good sense for an IT company looking to enter the market leveraging March's existing portfolio (e.g., IBM, HP, etc.). That being said, our thoughts on potential acquirers is purely speculation.

UPDATE: Just 6 months later, March was acquired by Infinova