Harbinger Capital indicated that it would be seeking two board seats on Openwave Systems, Inc. (NDAQ:OPWV). The activist hedge fund changed its filing status today from 13G to 13D (indicating an activist stance) and filed preliminary proxy materials to elect James L. Zucco and Andrew J. Breen to the board of directors. This news comes as OPWV is well off its 52-week highs of over $20 per share. Currently the stock is sitting at around $9.60 per share aftering moving up over 9% on this news today.

What changes would the new board push to implement? Well, according to the 13D filing:

"Establish a unified and focused "platform" vision for the Company's overall product offering with the Company's most strategic core products. Currently, the Company is supporting a very broad product line with a divergent mix of products for each customer. The Company is now in the process of creating significant new technology (OPPS and ODP) which is unproven in the marketplace and with only minor tie-ins to existing products. Perceived delays in product development and the release of these new products have caused investors to worry about the future of the Company. We urge the Company to develop a unified vision and customer message with a coherent business, market, and technology strategy. The value proposition should clearly communicate that an investment in the Openwave platform can be leveraged across multiple applications and product generations.

Prune non-performing product lines to further reduce costs. Many of the Company's aging lower-margin products no longer warrant continued investment and allocation of resources to such products prevents management, sales organization, and R&D employees from properly developing and selling new products. The Company needs to apply a specific set of investment metrics against all current and planned products and products not meeting the criteria for continued investment should be discontinued.

Immediately reduce quarterly operating expenses to approximately $50 million. Given the uncertainty of deal flow for new products as well as declining revenues and pricing pressure for legacy products, the Company's revenue is more likely to remain in its current range for the next several quarters and there must be some contribution to margin generated by more significant reductions in operating costs. We believe that the Company can make this reduction through office consolidation, reduction in redundant headcount, sales reorganization, and other administrative cost reductions.

Immediately commence a significant share repurchase program. As of September 30, 2006, the Company had cash and cash investments totaling $505.1 million and net cash of approximately $355 million. While we recognize that a strong balance sheet is needed in order to compete for business in the Company's end markets, we feel strongly that the amount of cash currently on hand could only be justified by management's desire to make acquisitions. While we recognize that acquisitions are an important part of any growth strategy, Harbinger Capital Partners do not believe funding large-scale acquisitions would be a prudent use of this capital at this time. Harbinger Capital Partners would recommend that the Board take steps to implement a $200 million share repurchase program or dutch auction tender, reducing current shares outstanding by approximately 25%. This would leave the Company with net cash of approximately $155 million (gross cash of approximately twice the outstanding debt) which should provide ample financial flexibility." (Read More)

Clearly these are changes that would be beneficial for shareholders. Streamlining the company's product lines and operating budget would save millions of dollars, while a share repurchase program would increase the value of the stock by reducing the float by a quarter. If Harbinger is successful in installing its board members, we could see significant share appreciation from these levels over the medium to long term. Consequently, OPWV is definitely a stock worth watching going into 2007.

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