Mosaid Technologies on Wednesday asked shareholders to reject a hostile, C$480 million takeover bid from WiLan Inc after the patent licensing company's board said the offer was inadequate.
Ottawa-based Mosaid said it might pursue higher bids for the company after investors digest its acquisition last week of a huge portfolio of Nokia and Microsoft patents.
Even before Mosaid acquired the Core Wireless patents, WiLan's offer was clearly inadequate and highly opportunistic - it is only more so now, Mosaid Chairman Carl Schlachte said in a statement.
WiLan, which develops and licenses intellectual property for the communications and consumer electronics markets, made a C$38-a-share offer for Mosaid in late August. The bid underscores the global race for technology patents to use as weapons in litigation and in cross-licensing.
Mosaid shares slipped 1.46 percent to C$40.60 a share in midafternoon trade in Toronto, but have been trading above WiLan's C$38-a-share offer price, suggesting the market expects a higher bid to emerge. WiLan rose 5.2 percent to C$7.28 a share.
Mosaid announced a deal last week to acquire about 2,000 Nokia and Microsoft wireless patents, saying the deal would bring revenues exceeding all of the C$1 billion generated since the company's formation in 1975.
And while several analysts raised their fundamental valuations of the company as a result, Mosaid's share price has been largely unaffected.
In a 56-page circular, the company said it was waiting for the broader market to assess the wireless patents acquisition before deciding on a future course of action, including the possibility of a merger, sale or restructuring.
Mosaid said its largest shareholder, Mawer Investment Management Ltd, and all of its directors and officers - holding some 16.7 percent of the company's stock - have rejected the offer.
Mawer Investment portfolio manager Jeff Mo said the WiLan offer only values Mosaid's existing business, without taking into account the potential for future growth, especially after the Nokia patent deal was announced.
He said all the other stock holders he had spoken to agree, including many who feel Mosaid would do best to remain a stand-alone company as it goes through the process of monetizing patents.
A large minority feel that a cash takeover at this stage of Mosaid's development is not the best way to maximize value, said Mo.
Mosaid Chief Executive John Lindgren said the company aims to convince shareholders and potential investors that the new patent portfolio, while weighted more toward technology that runs existing 3G networks, will remain relevant even with the advent of more advanced 4G networks.
Every 4G phone sold on the planet will be backward compatible with 3G networks, he said. The revenue potential from this program are unlike anything else that we've put our hands on, he told Reuters.
A WiLan spokesman said the company had no statement to make at this time.
Bank of Montreal analyst Brian Piccioni said in a report the patents added C$17 a share to his fundamental valuation of Mosaid. He raised his price target on the stock to C$49 a share from C$40.
The largest shareholder opposes the bid, so that's a start, as well as speaking to those large shareholders and trying to say, 'listen, there's a lot more value here than what you're getting at C$38 a share,' Piccioni said by telephone.
Mosaid also said the WiLan offer values it below its peer group, and said it was not a firm offer because it gave WiLan the option not to proceed.
Wilan's offer expires on September 28.
(Reporting by Pav Jordan; Editing by Frank McGurty)