IDC (part II):
...Alliance or Acquisition? Not surprisingly, many IDC shareholders believe that InterDigital is a ripe acquisition target in an environment in which the major telecom firms, enjoying dramatic increases in their share values, have plenty of capital to buy attractive resources. Apparently, the InterDigital Board also considers the Corporation a ripe target for acquisition. In 2Q99, they hired the investment banker Morgan Keegan to help sort out their options.
InterDigital probably has a 6 – 12 month lead over the competition in developing next generation wireless architecture. That lead was perhaps 12 to 18 months at the end of 1998, I believe. InterDigital realizes they are in a unique position. They have what some of the giant telecom technology firms greatly need -- the know-how for putting together a wireless next-generation telecommunications system.
Some shareholders suggest that InterDigital retain its profitable and cash rich licensing and royalty arm (already designated as a wholly owned corporate subsidiary) and allow its engineering arm to be acquired. They argue that this would enhance shareholder value and ensure that InterDigital's $38.7 million in tax loss carry forward credits not be forfeited if the entire corporation were acquired.
Of course, the discussion of InterDigital possibly being acquired is hypothetical at this point. But we know that InterDigital is in an enviable position relative to earnings as well as cash on hand and that IDC recently hired an investment banking firm to provide advice on matters related to acquisitions, purchases and mergers.
Another major alliance (ala to the Nokia $70 million deal in 1Q99) instead of, or leading into, an acquisition is another possibility. (An interesting precedent for the alliance as a prelude to a buyout is Cisco System's (NASDAQ:CSCO) alliance with the U S division of Bosch in 2Q98, followed by a buyout of the Bosch division by Cisco and Motorola (NYSE:MOT) in 2Q99. Just as the alliance between InterDigital and Nokia has made sense as a way to help Nokia with the engineering experience it needs in wideband CDMA, so also a major alliance between InterDigital and Cisco, Texas Instruments, Qualcomm (NASDAQ:QCOM), Motorola (NYSE:MOT) for some other firm could be quite profitable for both parties.
InterDigital shareholders are on the whole quite aware that timing is everything. The telecom tech giants are currently running behind, but they are committing vast resources -- far more than InterDigital could ever hope to muster -- to catch up. When they catch up, InterDigital future as a freestanding, viable corporation may be uncertain.
That's why InterDigital has hired an investment banker to look for firms interested in buying the company. It is strongly in InterDigital's interests to consummate one of the following deals before the end of 1999:
a) another major alliance, b) an alliance leading to an acquisition, and c) an outright acquisition
A growing number of InterDigital shareholders strongly believe that InterDigital is in the final stages of either a major new alliance, or an acquisition deal with some large telecom technology firm.
Shareholders see confirmation of their belief that management and board members are currently involved in negotiations toward an additional major alliance or a buyout by the following:
1.The company's highly touted search for a new CE0 (the post has been vacant for some time) may or may not have been moved from the front burner to the back burner, suggesting that the appointment of a new CEO would be inappropriate if acquisition was imminent. 2.The stockholders, including the Heartland Fund (currently holding 8 million shares -- 18 percent of the corporation) want a buyout, sooner rather than later. 3.A significant increase in trading volume, including the relatively large number of $5 and even $7.50 calls for October, December and March 2000 contracts, suggest strongly that a major announcement is near at hand.
Nonetheless, rather than buying the company on the basis of rumor -- however plausible it may be -- a prudent investor will carry out "due diligence". That is investigate the pros and cons of the investment, including the inherent risks and rewards. (See: "Acquisition Target?" "Competition Risk" and "Partnership Risks")
Teflon |
