Special Situation: take-private trading at 35% of tender price

Sonim Technologies' largest shareholder is trying to buy them out at $4. The stock currently sits at $1.46, but management don't want to sell. This should be a fun one.

I should start this post off by saying — I always include a disclaimer on my posts, ‘do your own research’ etc., but this time I really mean it. I have no legal experience and very little special sits experience. While the potential upside is attractive, I have little confidence in my ability to accurately assign probabilities to the various possible outcomes — I’m mostly just writing about this because I think it’s interesting.

So seriously, do your own research — and when you do, send me a message with your findings/conclusions, because I’m sure there is much I’m missing.

Executive Summary

Sonim Technologies is a Nasdaq-listed manufacturer of highly-ruggedized phones, 4G/5G mobile hotspots and fixed wireless access devices, for use in industrial enterprises.

On March 11th, 2025, Orbic North America — a manufacturer of Android phones, Windows laptops, routers, and wearables — acquired voting rights to 31% of Sonim’s shares from its largest shareholder. With management refusing to enter acquisition talks, Orbic announce their nomination of a slate of 5 directors for the AGM in June. 20 days later, they offered to buy Sonim for $4.00 per share ($25.6m).

Shortly afterwards, Sonim announce a change in the CEO’s compensation arrangement — broadening the definition of a ‘change in control’, and tripling the CEO’s severance in such a scenario.

That’s not the only promising sign for this deal. A special situations investor named Laurence Lytton owns another 14% of shares, and is likely to vote in Orbic’s favour. Additionally, Orbic reiterated their interest on the 10th of April — indicating tariffs haven’t fazed them.

The share price initially jumped from ~$2.20 to ~$3.20 following the offer. However, the shares slid over the following days as it became clear the board was not going to take it (and as tariffs hit, of course). Today, it sits at just $1.46 — implying a 250% upside if the current deal goes through.

That’s the pitch. However, with questions surrounding every aspect of the offer — including the board’s right to refuse it, Orbic’s odds in the vote, and the ability of Orbic to even pay for the deal — this is far from easy money. Let’s talk about it.

Sonim Technologies - The Business

Before we get into the depths of the deal, it’s worth spending a minute on the underlying business here — it’s relevant for understanding both motivations for the offer and the downside should it fail.

As mentioned, Sonim makes ruggedized phones and wireless routers. These are primarily sold via the big three mobile network providers - AT&T, Verizon and T-Mobile - to enterprises, for use in transportation & logistics, construction, manufacturing etc. It’s not the most lucrative of businesses, as the numbers show…

Financials

The first thing you’ll notice is the absolute rollercoaster of a top line. Seeing this, I’d naturally assume they must have made some major acquisitions and disposals throughout the period in question, but no. The variations are due instead to the introduction and discontinuation of various product lines — they seem to have paid no heed to creating a consistent product cycle.

2024’s revenue decline of almost 40% represents the discontinuation of their lower-margin white label products. This was planned, but accelerated by production difficulties, exacerbating 2024’s loss.

2025 is expected to be better, with an increase in revenue and decrease in R&D as their new lines go into production. However, that also comes with an increase in NWC, meaning it’s not likely to slow the cash burn. This is a problem because, as you can see, their balance sheet is a disaster:

They did manage to get a $3m loan post year-end, despite their negative equity, negative earnings, negative cash flow and current ratio <1 (how on earth the lender thought that was a good idea, I do not know) — but still, it seems like this business is on its last legs.

What about the China tariffs? Well, while Sonim has historically manufactured in China, the new products are being manufactured elsewhere, and Sonim were already planning to move manufacturing completely out of China this year anyway. So they’ll probably cause a bit of a headache, but shouldn’t be disastrous in and of themselves.

What may be more of a problem is how the tariffs will affect manufacturing prices in other countries. China exported $130 billion of electronics to the US in 2024, by far the largest category. If the 145% remains in place, all of that demand will go to places like India and southeast Asia. And since it takes a few years to build factories, that’s probably going to jack rates sky-high for those that haven’t already locked in fixed-price contracts.

All of that is to say — I can’t see any pathway by which the downside in a no-deal scenario is not -100%.

What about Orbic?

There’s limited information available on Orbic, since it’s privately held. We do know what they make:

• A range of low-mid price android phones

• A few mid-range laptops

• Mobile hotspots

• A smartwatch and headphones

• A 5G e-bike with a built-in screen (on which you can, among other things, take a zoom call) and AI-powered collision avoidance (I’ve got no idea how you do this without sending the rider flying). Bafflingly, it seems to be priced at just $300 for pre-order.

And we know company does annual sales of around $100m. I must also imagine they’re at least somewhat profitable in order to be making this offer. The founder and CEO, Mike Narula, does seem like a bit of a nutter though. In addition to the Jetsonian e-bike and the $26m offer for a clearly-dying company, Orbic announced in 2024 that it would be moving its manufacturing from China to… Long Island, NY?

That’s a very economically questionable move (at least, it was when they made it). They expect to pay an average of $46k/yr, which is probably 4x what Chinese workers earn. Adding to the weirdness, Orbic’s website has said since 2022 that they manufacture in India.

Post-China trade war though, this suddenly looks like a financial masterstroke. They also collected a $10m subsidiary (versus $31m projected capex), by promising to create 1000 jobs — though clawback applies if they don’t achieve this.

Production at the first of four planned factories was originally expected to begin in Q4’24, but based on the lack of announcements and their recent LinkedIn posts, I would guess it has been pushed back.

Still, I think this move offers a partial explanation for their desire to acquire another subscale producer of phones and routers — there are probably meaningful synergies to be achieved by bringing them under the same roof.

The Timeline

This section is kinda long and a lot of the info may turn out to be unnecessary, but it seems like the most logical way to present my full understanding of the situation. It gets interesting on January 10th, 2025, if you wish to skip ahead.

April 2022

The story begins back in April 2022. The financials were in a similar state to today’s, and the company needed financing.

Enter Jeffrey Wang, a Californian software engineer. For whatever reason, he has a lot of money, and he decides to inject $17.5m of it into Sonim (via his company AJP Holdings), in exchange for just under half of the equity. The transaction price is $8.40 per share, adjusted for the 2024 1-for-10 reverse split. Pursuant to the transaction, he also becomes chair of the board.

Also pursuant to the injection, the EVP of Global Operations, Peter Liu, puts up ~5% of the $17.5m in exchange for 95,200 shares, and becomes CEO. I can find no link between the two of them prior to this investment, so perhaps Jeffrey just thought he was more competent than the prior CEO.

The transaction also required Jeffrey Wang to vote for the election of the current directors, until the conclusion of an SEC investigation which began in August 2020 (for some reason). That investigation concluded in March 2023.

November 12th, 2023

The board replaces Jeffrey Wang with director Mike Mullica as chairman. Jeffrey Wang remains on the board, but it’s the first real sign of tensions brewing.

December 8th, 2023

The self-dealing begins, subtly. The CFO’s salary for 2023 is retroactively increased from $275k to $320k, and he is gifted at-the money ($7/sh) options on 20,000 shares.

Additionally, the employment agreements of both the CEO and CFO are amended to give them 6 months’ salary as severance if the company is bought out.

April 29th, 2024

The company sells 300,000 shares and warrants for 300,000 more (strike price $11) for $3.85 million to Jiang Liu. It’s unclear whether there is any relation between Jiang and Peter.

Prior to this agreement, there were 4.32 million split-adjusted shares outstanding.

May 3rd, 2024

The company issues an 8-K indicating it intends to hold the AGM more than two months earlier than in the prior year, and sets the deadline for proposals as May 13th - just 10 days away. Typically, the proposal window is 30-60 days, with 10 being the absolute minimum allowed — hence this seems like a tactic to prevent shareholders from being able to submit a proposal in time.

June 20th, 2024 - AGM

The shareholders approve two significant proposals from the existing board. One doubles the number of authorised shares, from 100m to 200m, and one permits a 10-for-1 reverse split — from 47 million to 4.7 million — without changing the number of shares authorised. Hence, the ratio of authorised shares to outstanding shares increases from 2.1x to 42x.

Using fears of a delisting (which Nasdaq was threatening if they didn’t get the stock price up), the board forced shareholders to open themselves up to enormous dilution.

August 6th, 2024

Sonim creates an at-the-money facility, under which they may issue up to $8.9m worth of shares at the going market price. The market cap at the time was only $14m.

January 10th, 2025 — It Begins

Two significant events occurred on January 10th.

First, Orbic signed a non-binding letter of intent to acquire half of AJP’s 39% stake, with an option to buy another quarter.

Second, Sonim announce an increase in the number of shares outstanding under the employee incentive plan from 404k to 953k.

January 15th, 2025

Orbic issue a press release on their LOI, stating they intend to “begin an arm's length strategic process to identify, monetize and deliver operating and financial synergies to both companies' shareholders and customers across R&D, supply chains, and geographic market expansion opportunities globally.” In other words, “We want to buy you.”

The stock peaks at $6.38 intraday, almost double the pre-announcement price, before falling to $3.78 at close.

January 22nd, 2025

Sonim forms a Special Committee, consisting of the chairman (Mulica) and one other director (Cassano) to “carefully consider and evaluate strategic alternatives received from several parties including, but not limited to, Orbic North America.”

February 5th, 2025

Laurence Lytton purchases 465k shares representing 9.3% of the year-end count. Shares were at about $2.80 at the time.

The SEC database lists over 250 filings for Lytton, most of them Schedule 13Gs (for registering substantial ownership). Many of the companies listed were subsequently acquired — implying Lytton is a special situations investor, possibly activist, and thus is almost certain to vote in favour of Orbic’s slate.

It’s a shame I can’t find Lytton’s contact details or any social media — it would be good to discuss the situation with him.

February 6th, 2025

Sonim grants RSUs to 97 employees (all of them, I’m guessing). The total number is not disclosed, but the CEO, CFO and chief commercial office receive 170k collectively. The RSUs vest in two equal tranches 90 and 180 days from the grant date (so May 7th and August 5th) — meaning half of the shares will be able to vote in the AGM.

February 21st, 2025

Sonim takes on a $3.3m 18-month loan, with a headline interest rate of 9% but an effective interest rate of more like 27% due to a 10% face value discount and a random charge of 17.6% of face, payable if the note is still outstanding after 90 days. This is a classic “death spiral” loan.

February 24th, 2025

Lytton increases his stake to 866k shares, 17.4% of the year-end share count.

March 11th, 2025

AJP signs voting rights on all its shares over to Orbic.

March 21st, 2025

Orbic and AJP collectively announce their nomination for a slate of 5 directors.

In the press release, they state the board has refused to engage in any discussions, and accuse them of entrenching themselves.

March 31st, 2025 — The Offer

An SEC filing reveals Orbic have made an offer to Sonim’s board for $4.00 per share.

On the same day, Sonim’s annual report reveals the number of shares outstanding has increased from 4.98m to 6.32m during Q1’25, presumably via the ATM facility. Based on this count, Orbic’s voting power is now 30.8% and Lytton’s is 13.7% — even before considering the employee RSUs.

April 2nd, 2025

Peter Liu’s compensation in the event of a change in control is increased by the board from 6 months’ salary to 18 months’ salary plus the maximum bonus. The conditions under which it is payable are also loosened.

On the same day, a third member, Jack Steenstra, is added to the Special Committee, and each member is granted 47,000 shares.

April 10th, 2025

A filing from Orbic and Jeffrey Wang reveals the board have rejected the director slate proposal from inclusion on the proxy, on the basis that it omitted “experience, qualifications, attributes or skills of the nominees that support their nomination.”

This is clearly BS - you can read the nomination here - and the filing calls them out on it. It seems to just be a stall tactic, which is interesting — I had previously assumed Sonim were going to push the AGM back as far as possible to maximise dilution; however it now seems they may try to have it as early as possible (or legally justifiable), with the aim of preventing the proposal from even making it.

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That brings us to today. Read on for my analysis of the current situation, and my best guess at how it all plays out.

The Vote

The first big question is whether Orbic’s slate will be voted in. Considering:

• 44.5% of the March 24th share count are known to be in favour

• Only 60% of shares voted in the last AGM

• The offer price is XXX times the current price

It seems highly likely that, if the vote were held today, they would succeed. Hence, the result will depend on two questions:

1. Can Sonim prevent Orbic’s proposal from seeing the light of day?

I think this is unlikely. Delaware courts have historically defended shareholders’ right to vote on board composition very strongly. For example, in Blasius Industries, Inc. v. Atlas Corp (1998), the Delaware Supreme Court ruled that boards must demonstrate a “compelling justification” for actions primarily intended to interfere with stockholder voting in election contests. This is now known as the Blasius standard — and it’s very rarely met.

2. Can Sonim issue enough shares before the record date to win?

This is a trickier question. Issuance of loads of shares unnecessarily in order to thwart a proposal would generally be considered entrenchment and a breach of fiduciary duty. However, considering Sonim’s precarious financial situation, it may be difficult for a judge to definitively say such action was unnecessary. My understanding is this would really come down to their personal judgement.

There is also the question of whether such issuance would even benefit the current board’s chances. Shareholders buying at current prices have no real reason to vote against the proposal — I mean, they surely can’t believe Sonim is worth more than $4/sh as a public company. Plus, it only gives Orbic more opportunity to scoop up shares on the cheap.

Altogether, I think Orbic’s board proposal will probably pass.

After the Vote

The second big question is what Orbic do if they win the vote.

One possibility is that they rescind the offer. Generally, my understanding is that the courts would not look favourably upon an acquirer getting a slate elected on the basis of an offer, then revoking said offer, despite nothing much having changed — this can be viewed as coercive. However, I suspect the macroeconomic calamity of the past couple weeks would be sufficient justification for doing so. Hence, this really comes down to whether Orbic still want to buy Sonim. In this regard, the April 10th letter is quite reassuring — they’re still pursuing.

The other possibility is that they reduce the price. Again, this kind of playbook - high offer, get slate elected, reduce offer - would likely raise some legal eyebrows if the price drop is without justification (even if the original offer was expressly non-binding). However, in addition to the tariff malarkey, the share count may have increased significantly by the time the AGM rolls around — at the very least, I’d guess it would be difficult to argue dropping the tender price so the total consideration remains constant is unfair. For example, if Sonim manage to expand the share count by a third, I’d be surprised if the tender price isn’t reduced to $3 or less.

One Other Possibility

My guess is that management and the board are entrenching themselves because they are enjoying paying themselves quite handsomely while doing a terrible job of running the business. But as I said, I don’t think the company will survive another year if this deal doesn’t happen. Since the CEO would receive 18 months’ salary if the deal happens, plus whatever Orbic pay for his 270,000 shares, I would think it’s in his interest to take the deal at this point.

The same goes for the other board members — Mulica, Cassano and Steenstra — who collectively own 240,000 shares. I don’t think collecting another few months’ worth of their ~$60k salaries justifies taking that hit. And that’s not to mention the risk of being sued for breach of fiduciary duty.

Hence, I think there’s a real possibility they capitulate and take the deal here.

Then again, animal spirits are probably at play to some extent — and there may be other incentives that I can’t see clouding the picture.

Conclusion & Best Guess

While at first glance this seemed like a pretty asymmetrical bet, on further inspection there are just too many moving parts for me to underwrite it with any certainty. Questions remain as to:

• Whether the company even remains solvent long enough to see this through

• Orbic’s ability and willingness to pay for this deal

• The degree of dilution possible before the AGM

• Who holds the ~50% of shares currently unaccounted for (it’s not Vanguard and Blackrock)

• The board’s incentives, and whether they’re personally risking legal trouble by refusing to play ball and instead self-dealing

My best guess is that the deal either gets accepted before the AGM, or Orbic wins the AGM; but eventually ends up being unable to finance the deal (at least at anything like $4.00 a share). But my conviction in that guess is not strong.

Still, I think it’ll be interesting to watch how this unfolds over the next couple of months.

In the meantime, I really have to get back to studying for my finals now. Wish me luck.

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