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Overland may be facing an uncertain future with the loss of its biggest customer, but ADIC likes what it sees.
ADIC disclosed in an SEC filing Friday that it had taken a 9.3% stake in Overland and had met to discuss "a possible business combination."
ADIC began acquiring shares of Overland on August 4 a day after Overland's stock plunged 20% on the loss of HP's tape storage business. Overland responded to the loss of HP's business with ambitious plans to compete with Network Appliance in primary storage.
When ADIC's stake was revealed Friday, Overland's stock shot up 26% giving ADIC a quick 16% profit for its troubles.
But ADIC has its eye on more. The tape automation leader revealed that it had met with Overland CEO Christopher Calisi in January "to discuss Overland's business and future plans. Both companies entered into a confidentiality letter in consideration of a possible transaction at that time," according to the SEC filing.
ADIC met again with Calisi last Thursday "to inform him of the purchase of the shares and to discuss a possible business combination."
ADIC said it "may engage in additional discussions with Overland's management and possibly its board concerning the possibility of combining the operations of the two companies on terms that are in the best interests of the shareholders of both companies."
Still, analysts are skeptical of the possibility of a merger between the tape automation leader and its smaller rival.
"We do not believe the purchase necessarily signifies an acquisition, but rather view it as management testing the waters," Baird analyst Daniel Renouard wrote in research notes on the two companies Monday. "We believe ADIC management viewed the enterprise value of OVRL as an attractive investment more than a signal of intent to acquire. This would be an unusual way to acquire another company given the high likelihood of driving the stock (and prospective purchase price) meaningfully higher."