WiLan Inc investors not pleased with results of strategic review process
Barry Critchley | May 19, 2014 11:20 AM ET
Stephen Takacsy, chief investment officer and portfolio manager at Montreal-based Lester Asset Management, is a long time shareholder of Ottawa-based WiLan Inc.
Takacsy was more than a tad disappointed when he read the release about the results of WiLan’s strategic review last week and even more disappointed when he listened to the subsequent conference call.
After the markets closed on Wednesday, the day of the review, WiLan said that after a “comprehensive process” the board of directors determined it is in the best interests of the company and our shareholders to execute an updated business plan “focused on business diversification, licensing partnerships, improved profitability and increasing the return of cash generated from operations to shareholders.”
In the conference call, Takacsy was also dismayed when he heard that during the strategic review process, WiLan received a “number of expressions of interest” that did not result in the sale of the company. During that review, announced Oct. 30, 2103 and on which WiLan worked with Canaccord Genuity, WiLan had set up a data room. But the board concluded that none of the expressions of interest was high enough to warrant the company’s sale and none was high enough when compared with the expected gains from the newly announced strategy.
As for why there no formal offers, WiLan wouldn’t comment other than to say that the expressions of interest “didn’t satisfactorily value the company” in the view of the board.
Takacsy has a different take. He argues that the board’s decision of continuing with an updated strategy “doesn’t add up. The stock is trading at liquidation value, so the market does not have faith that current management can maximize shareholder value on their own. The market knows that the stock is trading at a huge discount to its net asset value.” It seems Takacsy isn’t alone. The day after WiLan’s decision, more than 3.64 million shares were traded, or five times normal daily volume. On the day, the shares were off by 8.5% to $3.25.
At that level the shares are trading within 15 cents of the low reached over the period from Jan. 1, 2011 to now. That low ($3.10) was reached last October. Over that three plus years, the average price, according to Bloomberg, is $5.05. The high was $9.40 reached in July 2011. The stock closed Friday at $3.25.
In Takacsy’s view, announcing an updated business plan “is simply an admission of correcting past mistakes like spending way too much on litigation expenses, acquiring too many patent portfolios and not delivering on past promises of revenue growth and profitability.” Takacsy adds that “it doesn’t make sense that during the strategic review a buyer wouldn’t have offered more than liquidation value.”
Takacsy wonders whether WiLan’s updated business plan was implemented because Wi-LAN’s management and board “are not aligned with shareholders.” He points to the relative lack of share ownership by the insiders other than the 2.2 million shares held by one of the founders and current director Michel Fattouche and the 523,000 held by chief executive James Skippen. In all, the eight directors own 2.9 million shares. As of March 31 2013, WiLan had 121.7 million shares outstanding.
“The company is widely held and a strategic buyer could easily take a run at the company, just like Wi-Lan did when it launched a hostile bid for Mosaid in 2011,” said Takacsy.
Calls to Tyler Burns, WiLan’s director of investor relations, seeking a comment weren’t returned.
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