Mosaid asks investors for time as WiLan circles
By Alastair Sharp
TORONTO (Reuters) - Mosaid Technologies MSD.TO is asking shareholders to give it time to prove the worth of the Nokia NOK1V.HE wireless patents it recently acquired as WiLan WIN.TO impatiently pursues a C$480 million hostile bid for its cross-town rival.
At the very least Mosaid can count on the support of its largest investor after rejecting WiLan's C$38-a-share bid this week, saying the offer failed to account for the value of the Nokia deal.
"It's not fair to ascribe next-to-zero value to those patents, and we feel that's what WiLan's deal does," said Jeff Mo, a portfolio manager at Mawer Investment Management, which holds a 10 percent stake in Mosaid, according to Thomson Reuters data.
Neither Mosaid nor WiLan sell products making use of the patents they control. Their sole source of income is the fees paid by companies that license the patents, based on a portion of their device sales.
Mawer's Mo said Mosaid's potential license growth could add $40 to $50 to its share price, which was trading at around C$40 on Friday. The shares jumped above a July peak of C$35 after WiLan's bid was made public on August 18.
It's an argument WiLan dismissed on Friday, saying Mosaid's Nokia deal, announced after it made its unsolicited bid, was unattractive and questioning its target's future revenue projections as overly optimistic.
Under the terms of the Nokia deal, Mosaid takes ownership of about 2,000 wireless patents, including some 1,200 deemed essential, at no cost but must shoulder all litigation and other expenses and keeps only one-third of gross revenues.
UPSIDE WILL TAKE TIME
Mosaid says it could earn revenue in excess of $1 billion over the life of the patents - more than it has made in 35 years of business - but it would take as much as two years before the cash starts rolling in.
Investors will now have to ask themselves whether they can wait that long and weigh the likelihood that WiLan might sweeten its offer or another bidder could emerge.
"The fundamental change produced by this acquisition of the Nokia patents really needs more time to get digested, so don't rush into a decision to take an inadequate offer of C$38," Mosaid Chief Executive John Lindgren said.
Shareholders who bought into Mosaid for less than C$10 back in late 2008 would realize an almost four-fold gain, but that is not much more than the 350 percent upside available in July, before Mosaid held the Nokia patents.
TOUGH TO VALUE
In recent years, the entrance of Apple (AAPL) and Google (GOOG) into the mobile phone business has upset a delicate balance of cross-licensed patent agreements among established players. That has triggered a flurry of litigation over technology used in smartphones and tablet computers.
Google, seen as weak in patents to protect its Android software, will pay $12.5 billion to buy patent-rich Motorola Mobility (MMI). A consortium that includes Apple and Microsoft (MSFT) earlier paid $4.5 billion for intellectual property belonging to bankrupt Nortel Networks NRTLQ.PK.
But the secretive nature of patent licensing deals makes valuing intellectual property assets difficult. It is not clear how widely the Nokia patents have already been licensed or when any deals will come up for renewal.
"There's many unknowns, and this will always be the case, and so there will be quite a range of values you're going to be seeing people talk about," said Art Monk, vice-president for intellectual property at UBM Tech Insights, which advises patent companies and counts both Mosaid and WiLan as clients.
Mawer's Mo, for one, is happy to give Mosaid's management an opportunity to explore licensing deals that would better value the patents before thinking of selling out.
"This is a case where it makes more sense to let Mosaid finish building the building and prove they can lease out the building.... instead of trying to figure out how much the building is worth by looking at the blueprints."
(Additional reporting by Pav Jordan; Editing by Frank McGurty)