Directors of Resonate Inc have accepted a $50.4m offer for the company from Rocket Holdings, an acquisition vehicle set up by Resonate’s CEO Peter Watkins and CFO Richard Hornstein. The board had accepted a $49.1m bid from Rocket in December but it was forced to sweeten its offer after a flurry of interest in the companies from outside parties.

In an SEC filing after the original bid, Resonate Said: Rocket Holdings will use the company’s cash and equivalents on hand at the closing to acquire the shares. Resonate had cash and equivalents of $67.8m at the end of September and Rocket’s new offer is conditional on the company still having $57.5m on hand when its bid closes.

Internet applications performance management vendor Resonate is typical of a large numbers of companies that held IPOs during the heady days of 2000 when it raised $87.4m on shares priced at $19.

The stock rocketed towards the $50 market during the dot-com boom but the company’s performance has been less than impressive. Though revenue more than doubled to $19.9m in 2000, it fell 28.9% to $14.2m in 2001 and is set to slide a further 23% this year to around $10.9m.

The company is loss-making and analysts polled by First Call cannot see it turning a profit until 2004. With such a dismal outlook, it has joined a batch of companies whose cash reserves far exceed their stock market value, and thus offers a substantial temptation to bidders in that they can be acquired for no initial outlay. Resonate’s shares have been as low as $1.02 in the past year while the Rocket offer is pitched at $1.83.

This vulnerability has led some companies to return cash to investors. In the UK, for example, hardware security vendor and cryptographic acceleration specialist nCipher Plc said earlier this month that it planned to return 65m pounds ($104m) to investors, following the example of programmable chip designer ARC International Plc which announced in November it would return 50m pounds ($79m) to investors.

However, both these companies were confident they would still have sufficient funds to survive until they reached profitability. While Resonate will still have a comfortable bank balance after the Rocket acquisition, it is unlikely to keep the Sunnyvale, California-based company afloat until 2004. Rocket has undoubtedly lined up some additional private finance to ensure the company’s survival, possibly from the directors themselves.

What is surprising is that no competitive bid has come in from another company, particularly since Cisco Systems and Nortel Networks acquired two of Resonate’s early competitors for large sums. Resonate boasts a blue-chip customer base, including AT&T, Bank of America and France Telecom. However, another company with a sales force already knocking on doors of companies like these would be able to get Resonate’s cost base down far more than it will as an independent company under Rocket.

Source: Computerwire