OTTAWA, Ontario – Sept 12, 2011 - MOSAID Technologies Incorporated (TSX:MSD) today updated shareholders on the process being undertaken by the Special Committee and its advisors, and set the record straight on a number of misleading statements contained in a press release issued by Wi-LAN Inc. on September 9, 2011.
"MOSAID is actively exploring a broad range of alternatives to the Wi-LAN offer and will pursue whichever course the Board believes will best enhance shareholder value. At this point, nothing is off the table and everything is up for consideration. What we know for certain is that our shareholders should not be misled by Wi-LAN's spin and they should not tender to Wi-LAN's inadequate and highly opportunistic offer," said Carl P. Schlachte, Chairman of the Board and Special Committee of MOSAID.
The Special Committee is focused on options that realize the substantial value in MOSAID that is not reflected in the Wi-LAN offer. MOSAID and its financial advisors have been approached by and have initiated contact with several third parties with respect to these prospective alternatives. Discussions are ongoing with these parties and discussions with additional parties are anticipated soon. Based on those discussions, it is anticipated that some or all of these parties will be given access to MOSAID's data room later this week. Although it is impossible to predict whether any transactions will emerge from these efforts, the Special Committee believes that shareholders can realize substantial value, well in excess of the Wi-LAN offer, through continued execution of MOSAID's business plan or through other available options.
"MOSAID has a number of attractive paths forward," added Mr. Schlachte. "It will take time, however, to determine which option might be best for MOSAID and our shareholders, and to then execute that option. This effort is complicated by public statements from Wi-LAN that are rife with inaccuracies and mislead the market with respect to MOSAID's track record and the value of the Core Wireless portfolio. We encourage our shareholders to read our circular and consider the facts."
- In its press release, Wi-LAN states: "Wi-LAN's management currently believes that the Core Wireless Agreement is not attractive from a financial and business perspective…" MOSAID believes this statement says significantly more about Wi-LAN's poor business judgment than it says about Core Wireless or MOSAID.
- On September 1, 2011, MOSAID announced the acquisition of Core Wireless Licensing S.a.r.l., a Luxembourg company that holds a portfolio of 400 patent families, consisting of 2,000 wireless patents and patent applications originally filed by Nokia, 1,215 of which have been declared essential to 2G, 3G, and 4G communications standards. The Core Wireless patents have been filed in 49 countries and have an average life of 10 years.
- With Core Wireless, MOSAID acquired more than twice as many wireless patents declared to be standards-essential than were contained in the Nortel patent portfolio in June 2011, when Nortel's portfolio of 6,000 patents and patent applications was sold for $4.5 billion.
By January 2014, MOSAID believes that four of the top five global cell phone vendors will be unlicensed to the Core Wireless patents.
The Core Wireless portfolio has significant potential value to MOSAID and its shareholders. Based on data from a leading technology forecasting firm, MOSAID estimates that over the next five years, companies unlicensed to these patents will sell US$500 billion worth of mobile handsets and smartphones.
- MOSAID's goal is to earn a fair and reasonable royalty rate on these revenues. Using even a very conservative royalty rate, MOSAID expects revenues from these patents to exceed the $1 billion cumulative revenues the company has received over its 36 year history.
- Unlike Wi-LAN, independent equity research analysts from both BMO Capital Markets and Northern Securities have recognized the potential value of the Core Wireless patents. These analysts have increased their per share estimates of MOSAID's net asset value by $17.00 and $30.50, respectively, to reflect the Core Wireless acquisition based on, among other things, their assumed royalty rates of 0.2% and 1.0%.
Wi-LAN frets in its press release that MOSAID is "required to fund 100% of the costs of monetizing the Core patents [but] will only receive approximately one third of the gross revenue generated" by these patents. MOSAID notes that it made no upfront payments to acquire the Core Wireless portfolio; that the Company conservatively estimates revenues from this portfolio may be well in excess of $1 billion; and that related operating expenses are expected to be approximately $8 million to $15 million per year, on average, over ten years. Given these and the other facts stated earlier regarding the Core Wireless portfolio, MOSAID is quite comfortable with the economics of this arrangement and believes the Core Wireless agreement is in fact quite attractive from both a business and financial perspective.
- As a patent licensing company, Wi-LAN surely understands the details of this agreement are redacted because they are commercially sensitive and their disclosure would disadvantage MOSAID in negotiating licenses to this portfolio. MOSAID has every confidence it will achieve the minimum royalty milestone payments under the Core Wireless royalty participant agreement.
- The Core Wireless patents are not "controlled by Nokia Corporation and Microsoft Corporation" as Wi-LAN has falsely stated in its press release. As disclosed in MOSAID's press release of September 1, 2011 and the Directors' Circular, the Core Wireless patents are owned by MOSAID.
- The value of the Core Wireless portfolio, and MOSAID's ownership of the Core Wireless patents, are also confirmed by the following public statement from Microsoft which, like the Directors' Circular, was on the public record before Wi-LAN issued its misleading press release (emphasis added):
- "We are pleased to have secured a license to the Nokia patents now acquired by MOSAID for Microsoft's products and services. In return, we have a passive economic interest in the revenue generated from the licensing of those patents to third parties. The marketplace for intellectual property is incredibly dynamic today, and this agreement is an effective way to make these Nokia innovations available to the industry and to unlock the considerable value of this IP portfolio."
- Contrary to Wi-LAN's mischaracterization of the $5 million expense reimbursement fee as a "penalty fee," this is in fact a reasonable fee to compensate Nokia and Microsoft for their substantial costs over the six months it took to negotiate and close the Core Wireless acquisition.
Wi-LAN's statement that the change of control provision "is clearly designed to interfere with Wi-LAN's offer…" is false. Nokia and Microsoft required the change of control provision under the royalty participant agreement from early in the negotiations, which began in March 2011. This provision protects their economic interests in the Core Wireless patents by preventing them from being sold to a competing operating company or another licensing company that Nokia and Microsoft did not believe could maximize their royalty returns.
Wi-LAN has also mischaracterized MOSAID's success with the Agere wireless patent portfolio, which has been an excellent transaction for MOSAID and its shareholders.
- Wi-LAN compares a revenue figure for MOSAID's DRAM licensing program in the tenth year of that program to a revenue figure for the fourth year of MOSAID's Wi-Fi program, despite the fact that Mr. Skippen, Wi-LAN's CEO, who was involved with MOSAID's DRAM licensing program at the time, should know the comparable four year data for that program. This misleads the reader into believing the Wi-Fi program is somehow failing to live up to expectations, which is plainly not the case.
The proper comparison is that in the fourth year of its DRAM program, MOSAID had signed six license agreements worth slightly more than US$60 million of cumulative revenue, as compared to the 16 wireless patent license agreements MOSAID has signed in its Wi-Fi program in just over four years, which will deliver approximately $150 million in fixed contract amounts and estimated running royalties.
- These Wi-Fi revenues were particularly high margin revenues, since all of these agreements were achieved without litigation. Current revenues include only one license to a semiconductor company, and that company had 13% market share of the worldwide Wi-Fi semiconductor market in 2010.
Moreover, MOSAID currently has litigation related to the Agere patents pending against six semiconductor companies having a combined market share of 45%. MOSAID expects this litigation will result in licenses and settlements worth hundreds of millions of dollars.
- MOSAID believes that Wi-LAN has engaged in a pattern and practice of disparaging the Agere portfolio, and MOSAID, ever since 2007 when Wi-LAN lost out to MOSAID in a bid to acquire this valuable portfolio. MOSAID believes Wi-LAN is pursuing the same strategy of disinformation and disparagement with respect to Core Wireless.
- MOSAID's track record of creating value for shareholders is outstanding. From April 5, 2007, the last trading day before John Lindgren was appointed CEO of MOSAID, to August 17, 2011, the last trading day prior to announcement of the Wi-LAN offer, MOSAID delivered a total shareholder return of approximately 47%. By comparison, Wi-LAN's total shareholder return for the same period was approximately 10%. During this same period, MOSAID returned $62.5 million to shareholders in dividends and share repurchases, as compared to $9.8 million for Wi-LAN.
- Similarly, for MOSAID for the 51 months ended July 31, 2011 (May 1, 2007 - July 31, 2011), revenues were $287.5 million, and GAAP net income from continuing operations was $64.0 million. For Wi-LAN for the 53 months ended June 30, 2011 (February 1, 2007 - June 30, 2011), revenues were $178.5 million and GAAP cumulative net loss for the period was $3.9 million, despite having booked a tax asset of $21.7 million.
- The Wi-LAN offer has been rejected by MOSAID's largest shareholder and all of MOSAID's directors and officers who, in the aggregate, hold 16.39% of the fully diluted shares outstanding (assuming the exercise of all outstanding options).
"MOSAID is a conservative company known for under-promising and over-delivering," said John Lindgren, President and CEO, MOSAID. "We know the potential value of the Core Wireless portfolio, and we know the potential value of our other licensing programs and litigation initiatives. We believe we are on the threshold of the most significant period of value creation in the company's history. It follows that we believe MOSAID's value far exceeds $38 per share, and that shareholders are well-advised not to tender to Wi-LAN's offer."
MOSAID Technologies Inc. is one of the world's leading intellectual property companies. MOSAID licenses patented intellectual property in the areas of semiconductors and communications technologies, and develops semiconductor memory technology. MOSAID counts many of the world's largest technology companies among its licensees. Founded in 1975, MOSAID has offices in Ottawa, Ontario and Plano, Texas. For more information, visit www.mosaid.com and the InvestorChannel.mosaid.com.
Forward Looking Information
This document contains forward-looking statements to the extent they relate to MOSAID or its management, including those identified by the expressions "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "will," "would" and similar expressions. Similarly, statements in this document that describe MOSAID's business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. These forward-looking statements are not historical facts, but rather reflect MOSAID's current expectations regarding future events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results, performance or achievements to differ materially from those in such forward-looking statements. Assumptions made in preparing forward-looking statements and financial guidance include, but are not limited to, the following: MOSAID's continued expansion of its patent portfolio and of its opportunities for future patent licensing revenue as a result of MOSAID's acquisition of patents from third parties and from development of new inventions; DRAM manufacturers continuing to infringe MOSAID's patents; the timing and amount of MOSAID's litigation expenses; MOSAID's ability to sign new patent licensees; current assumptions as to the identification of products that are unlicensed to MOSAID's wireless patents; and the timing and amount of MOSAID's Research & Development expenses.
Factors that could cause actual results to differ materially from expected results include, but are not limited to, MOSAID's ability to negotiate settlements with licensees; legal rulings and/or regulatory investigations or complaints having an adverse impact on the validity, enforceability, potential royalty rates, and strength or breadth of coverage of MOSAID's essential and/or nonessential patents (including, but not limited to, adverse results from litigation or proceedings in patent offices and government regulatory agencies in various countries around the world); a change in control or failure to meet a minimum royalty milestone (in each case, pursuant to the terms of the Royalty Participant Agreement) that requires MOSAID to assign the Core Wireless Patents to a third party; judicial, legislative or regulatory changes that impair the ability of patent holders to earn licensing revenues; worldwide economic conditions and demand for technology products; economic, social, and political conditions both globally and in the countries in which MOSAID or patent licensees operate, including conflict, war and, other security risks, health conditions, possible disruptions in transportation networks and fluctuations in foreign currency exchange rates; non-payment or delays in payment by, or insolvency of, licensees or other debtors; variability in patent licensees' sales of licensed products; failure to maintain and enforce MOSAID's existing patent portfolio, or failure to obtain valuable patents as a result of R&D activities, or failure to acquire valuable patents from third parties; MOSAID's ability to recruit and retain skilled personnel; change in MOSAID's financial position; consolidation of MOSAID's licensees; natural events, such as severe weather and earthquakes in the locations in which MOSAID or patent licensees operate; and changes in the tax rate applicable to MOSAID as the result of changes in the tax law in the jurisdictions in which profits are determined to be earned and taxed, the outcome of tax audits and the ability to realize deferred tax assets. Additional information concerning these and other factors can be found beginning on page 30 of MOSAID's Management's Discussion and Analysis for the fiscal year ended April 30, 2011 under the heading "Risks and Uncertainties" and also on page 10 of MOSAID's annual information form for the year ended April 30, 2011, each of which is available on SEDAR at www.sedar.com.
MOSAID disclaims any intention or obligation (except as required by applicable law) to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, or to comment on any analyses, expectations or statements of third parties concerning any forward-looking statements. Investors are cautioned not to place undue reliance on forward-looking statements. No forward-looking statement is a guarantee of future results.