- Structure and undisclosed terms of Core Wireless Agreement raise questions about shareholder value
- WiLAN currently evaluating its Offer in light of the possible negative impact of the Core Wireless Agreement
OTTAWA, Canada - September 9, 2011 - Wi-LAN Inc. (“WiLAN” or the “Company”) (TSX: WIN; WIN.DB) (NASD:WILN) today announced its disappointment with the recommendation made by the Board of Directors of MOSAID Technologies Incorporated (“MOSAID”) to reject WiLAN’s all-cash offer of C$38.00 per MOSAID share (the “Offer”).
The MOSAID Board of Directors has urged MOSAID shareholders to reject WiLAN’s all-cash Offer on the basis that MOSAID’s current business plan will deliver superior value. MOSAID’s assertions of superior value are based on:
A number of important factors regarding the Core Wireless Agreement may negatively affect shareholder value:
- MOSAID has indicated that it will take 18-24 months to realize any revenue from the Core Wireless Agreement, however, MOSAID will incur immediate and significant levels of cash expenditures to perform its obligations under that Agreement.
- Although MOSAID is required to fund 100% of the costs of monetizing the Core patents, it will only receive approximately one third of the gross revenue generated under the Core Wireless Agreement. Based on MOSAID’s historical margins and returns, as well as significant execution risk, the financial benefits of this arrangement to MOSAID are questionable.
- MOSAID’s assertions regarding the Core Wireless Agreement are strikingly similar to comments it made in February, 2007 with respect to the acquisition of wireless patents from Agere Systems (the “Agere Portfolio”). At that time, MOSAID represented that the licensing revenue from the Agere Portfolio had “the potential to surpass the revenues that MOSAID had earned to date from its DRAM memory patents.” This result has clearly not been achieved. Based on public disclosure, at the time it announced the acquisition of the Agere portfolio, MOSAID had generated over C$230 million in revenues from DRAM licensing and significantly more in DRAM bookings. In the intervening four years, based on MOSAID’s financial statements up to April 30, 2011, it has generated less than C$50 million in recognized revenue from all communications programs, including the Agere Portfolio.
- MOSAID’s disclosure of the Core Wireless Agreement has redacted important information that is necessary to enable shareholders to assess the financial merits and demerits of the agreement. For example:
- WiLAN believes that the Core Wireless patent portfolio may already be licensed to a number of major parties, which would limit future revenue potential of the portfolio. MOSAID has not made any public disclosure about the extent to which this portfolio has already been licensed;
- MOSAID has redacted disclosure of key financial terms under the Core Wireless Agreement that could have a material effect on shareholder value. These include agreed upon minimum milestone payments, impairments payments and associated maximum liabilities; and
- MOSAID has not disclosed whether Microsoft and Nokia remain available as licensing candidates for other patents in MOSAID’s portfolio.
- The Core Wireless Agreement contains a Change of Control penalty fee of US$5 million (which equates to approximately C$0.40 per MOSAID share), which is payable to Nokia and Microsoft if a Change of Control occurs in the first year of the Core Wireless Agreement. Since Nokia and Microsoft determine whether to terminate the Core Wireless Agreement and trigger the payment of the penalty fee, no potential purchaser of MOSAID can ascribe any value to the Agreement. In the current circumstances, the Change of Control penalty is clearly designed to interfere with WiLAN’s offer and has the effect of entrenching management at a cost to MOSAID shareholders.
Without further disclosure and clarity about the full financial impact of the Core Wireless Agreement, the amount of cash available to be paid to MOSAID shareholders by any potential acquirer, including WiLAN, is likely to be materially and negatively affected. WiLAN’s management currently believes that the Core Wireless Agreement is not attractive from a financial or business perspective, however, the lack of public disclosure of key terms of that agreement make it difficult to arrive at a definitive conclusion.
WiLAN, founded in 1992, is a leading technology innovation and licensing company. WiLAN has licensed its intellectual property to over 250 companies worldwide. Inventions in our portfolio have been licensed by companies that manufacture or sell a wide range of communication and consumer electronics products including 3G and 4G handsets, Wi-Fi-enabled laptops, Wi-Fi and broadband routers, xDSL infrastructure equipment, cellular base stations and digital television receivers. WiLAN has a large and growing portfolio of more than 1400 issued or pending patents. For more information: www.wilan.com.