articleApparently my calculation yesterday for a takeover bid at $5 was not that far from analysts' consensus...
Where does Wi-LAN go from here?
Analysts believe the sale of Wi-LAN Inc. is a real possibility. But if the technology patent licensing company isn’t able to execute such a transaction, they have a couple of other options investors should be prepared for.
On Wednesday, Wi-LAN announced the launch of a strategic revenue that has no timeline for completion.
The stock has fallen 17% in the past month and 35% in the past year, following unfavourable rulings in several legal disputes, most recently with Apple Inc.
It jumped 6% on Wednesday after the announcement.
Todd Coupland, an analyst at CIBC World Markets, believes the most likely buyers of Wi-LAN would be another patent licensing company or a private equity firm. He highlighted Acacia Research Corp., whose CEO is also from Ottawa (Wi-LAN’s headquarters) and knows the company.
The analyst also pointed to Mosaid Technologies Inc., which was acquired by U.S. private equity firm Sterling Partners in December 2011, although its hostile bid for Wi-LAN in 2011 could present an issue.
He suggested a bid could come from InterDigital Inc., although this is considered less likely.
“We believe the preferred outcome is the sale of the company, with a secondary option being a return of capital to shareholders in the form of a special dividend/buyback along with continued joint ventures,” Mr. Coupland told clients. “If no buyer is identified, we would expect the share price to move lower over time post any special dividend.”
He raised his price target on Wi-LAN shares to $3.50 from $3.00, anticipating a sale would likely occur closer to the company’s signed deal net asset value, which is estimated at $3.65. That assumes the existing backlog is $350-million.
However, Mr. Coupland noted that potential buyers will likely discountthe backlog.
“A buyer could discount the backlog due to a risk of licensees halting payments, a licensee declaring bankruptcy, a risk of estimates of future volumes on running royalty agreements being high, additional costs of restructuring the workforce as well as terminating other operating costs,” he said.
In order for a buyer to pay a premium to Wi-LAN’s signed deal NAV, the analyst believes it would have to have a favourable view of the company’s more than 3,150 patents, including those related to Wi-Fi, CDMA, Bluetooth, LTE, v- chip and digital television.
“For investors to determine the potential for licensing agreement extensions and or new programs, Wi-LAN will have to provide additional disclosure on its collective patent potential,” Mr. Coupland said. “This is the case with the Samsung agreement, which was said to be collaboration along with an obligation for Wi-LAN to pay about $30-million to Samsung over time but with no explicit explanation.”
Clarus Securities analyst Eyal Ofir, who suggested Wi-LAN may need to pursue a sale on October 24, after the loss to Apple, agrees that this is the most logical way to surface value. He suggested this could potentially include a separate sale of the company’s DTV patents and business line.
“In our opinion, buying the shares below our floor valuation of $3.50 should generate significant returns for investors,” Mr. Ofir told clients, reiterating his speculative buy recommendation and $5.00 per share price target.
In addition to InterDigital, Acacia and RPX Corp., which he previously highlighted as potential bidders, the analyst thinks additional parties should be interested in Wi-LAN.
This includes Intellectual Ventures, a privately-held IP licensing firm thatr has acquired nearly 70,000 patents in its 13-year history, and Qualcomm Inc., in industry tech giant with an extensive IP portfolio and US$11.5-billion in cash.
“As mentioned previously, interest from private equity shops is less likely but we believe Wi-LAN can be particularly attractive to firms interested in running off operating cash flows and selling all or components of Wi-LAN’s patent portfolio to individual or multiple third parties,” Mr. Ofir said.