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Might NOK be interested in acquiring IDCC?
Negotiations between IDCC and NOK on the 2g license have reached the point where senior management people meet frequently. This could provide an excellent cover for conversations beyond just the terms of their agreement.
Loop:re 20%discount
If IDCC gives a 20% discount to NOK even though NOK declines to pay promptly, this means that the actual royalty rate was 20% less than what IDCC declared it was. e.g. if they say that the rate is .5% and then they let NOK pay .4% in 2004, their real rate becomes .4% . This could lead ERICY to demand a rebate and any licensees with an MFL clause in their agreement to assume that the real rate is .4% from which they could deduct another 20% for prompt payment. IMO IDCC does not have the luxury to give NOK a 20% discount unless they pay promptly.
CC of 5/13
I'm hoping for and expecting good news, based on the optimism of the last CC, but if not, I'd at least like some straight talk rather than a return to the "we can't discuss the details at this time" routine that has characterized IDCC in the past.
Unless there is an announcement that NOK has agreed to pay, no matter how this information is couched, I will figure on arbitration happening. If the talk is of ongoing negotiations, I will take it that the reasonable number of "days" that HG mentioned on 3/17 has been exceeded and, in all probability, we're going to arbitration. If NOK decides to forego the 20% discount offered them for prompt payment plus the advantages(to them) of the current exchange rate between the dollar and the euro and instead they go to arbitration, I would assume there are some issues existing that I have not fully understood.
Sometimes "finesse and polish" are less called for than bulldog tenacity and persistance. Telecom is not an English tea room but more like a boxing ring.
HG chose to be relatively detailed (and optimistic) in the 3/17 CC as to where we stood with NOK. I can not see him trying to evade the issue on 5/13. I expect we'll be informed straight out at that time as to whether its a done deal (as I think it is) or not.
Fredtankos: Interesting idea. I feel that IDCC would be up for sale only in a worst case scenario where they were having real trouble getting paid for 2g and 3G. If that happened and IDCC were acquired, the extra options given to management could be transfered to the acquiring entity as a sweetener for them. This would be a type of insurance for management and further lessen their risk. Here again, the interests of the shareholders and of management would not be "aligned".
GE JIM: The 31 million dollar payment by NOK was theoretically for work done by IDCC rather than royalty payments.
Sign from management
I interpreted the recent request by management for more options to be a sign that the timely payment by NOK was proceeding as predicted in the "sun is shining in K of P" comments at the CC on 3/17. If this turns out not to be the case, I would consider this request for additional options to be an action of unusual callousness and arrogance by management.
Management needs to accept risk too
IDCC is a risky investment. Its volatility has proven that. When you buy shares in this company, you accept risk. Management gets well paid and, in addition, has gotten lots of free options. Management has shown that they can have some influence on the price when they get the options and when they sell them, something the shareholders can not do with their shares. Where is management's risk? To properly "align the interests of management and shareholders", we BOTH need to accept risk. Otherwise conflicts of interest are inevitable.
Future options should be out of the money
A minimum of $35/share and a maximum of 4 years would be needed to "align the interests of management with that of stockholders". If this company is as good an investment as I think it is and management says it is, they should still be richly rewarded. When options begin to be expensed, as I'm sure they soon will be, you won't see deals much better than this.
IDCC needs licencees for 3G far more than cash. However, if the advantage of awarding options was to raise cash for the company, why not give options to present stockholders?
Three possible statements by management on 5/13
1. "NOK has agreed to pay royalties according to our 1998 agreement and the first check has been received in our account."
OR
2. "Negotiations with NOK are ongoing. They are taking longer than expected. We are not at liberty to discuss the details of these negotiations at this time."
OR
3. "NOK has declined to pay royalties according to the terms established by our contract with them. We have therefore entered into arbitration to resolve this dispute."
Which will it be? I personally feel that number 1 statement is the most likely. I realise that I am not addressing the most pressing issue of tonite, namely the options, but I feel that the events of the next few days may have some bearing on how we approach this.
Odd timing here for options request
This request could have been discussed by management in CC on 5/13 in connection with the earnings report. It may have been released now so that we could all express our upset and then be embarassed when really good news was released in the next few days just before the CC.
fmilt: the CC of 3/17 was unusual in the amount of optimism about NOK paying us that bubbled forth. (In fact it was so much so that the share price shot up about 10 points from 14 the day before the CC to over 24 nine days later). You say "Isolated sales can be explained as personal needs. Widespread sales tell me that there is uncertainty in the near term. Doesn’t mean that Nokia won’t accept the ERICY rate without arbitration or that the indemnification is not going to be a significant barrier to licensing, but it means that the management of IDCC wasn’t sure of it when they sold." I believe that management was being sincere with us in the CC and that they had legal opinions to back up their optimism. I do not believe that they would have presented one set of opinions for us and then another when they spoke privately to each other. I will admit though that I am puzzled by these insider sales.
Jim: the predominant reason to short this stock is if you believe that NOK will refuse to pay.
"TO All , I just got a phone call and the short interest has gone up to 5,125,981 shares. That's an increase of 1,000,000 shares. If we get some decent news or earnings we will really see the stock climb. I'll be back on line later tonight."
HG said NOK should pay WITHIN DAYS. I interpret this to mean between 30 and 60 days. More than 60 days would be months, not days. The conference call was 3/17 so I figure the cash should be in the till by 5/17. If I am right, the shorts will lose big. If I am wrong, the shorts will win. Its that simple.
Danny
Stock options are justified in companies with no cash to pay executives what they are worth. Idcc is no longer in this category. Managers should be paid salaries commensurate with their responsibities. If they do an unusually good job, they should be awarded a reasonable bonus and a raise. If they don't do a good job, they should be replaced by those who can. I spend my hard earned money to buy shares in this company and if the managers want to own shares, they should spend their own money. To give them shares via cheap options which they then trade for huge profits is a fraud on the investing public. I don't care what W.S. says.
PUMP AND DUMP on March 17
Can anyone point out a more classic case of pump and dump than what management pulled off 22 days ago? I have to take my hat off to these guys. They really excel in this area.
If anyone wonders about whether distributing large numbers of options to management aligns its interests with that of the stockholders, they should ask the large group of long term and loyal stockholders (as can be seen from their posts here over the years) who threw in the towel yesterday.
Difference in philosophy between IDCC management and stockholders.
Stockholders want IDCC to be a super success (like QCOM) while IDCC management just wants to pick up some nice bucks without too much risk to itself. The question is; how much impunity does management have to follow its own agenda while ignoring the stockholders. The answer seems to be: A LOT
Corp buyer:my thots on your thots
1.On materiality of indemnifier disclosure: The conference on 3/17 did not mention the indemnifier problem. The price went up. Insiders sold. The 10 K disclosed it. The price went down. Does this wash?
2.Ditto on the 10 K disclosure that Sharp has not renewed
3.CC was very optimistic that NOK would pay. The term DAYS was thrown out. No update on NOK. Insiders sell 10 days later. The price goes down. What is the public to think?
4."If QCOM has been handing out indemnifications like candy,then IDCC might end up owning(or severely damaging) QCOM." Sure, just like they ended up owning or damaging ERICY!
To IDCC management:WE NEED A CC TOMORROW TO STRAIGHTEN THIS OUT. We need it more now than we needed it on March 17.
Thinking positively about the 10K and Rip
1.NOK needs to see another major licencee for 3G before they will pay. This should not be a problem since we've got the goods and our rates are low.
2.No mention of NOK or Samsung paying now. No real problem here since they will definitely pay, even if next year, and they will pay without a discount at that time.
3.Rip has sold 68,000 shares. He probably sold them because he correctly figured that this was a time that the market would take them without gulping too hard. His future is now secure. Ours will soon be.
IDCC will never be a truly successful company until it gets a dramatically large settlement or a convincing court victory from a prominent infringer. Otherwise IDCC will always have to live with the ghost of the MOT case. I believed strongly about this before the Ericy settlement and then I became half convinced I was wrong. Now I am more sure than ever.
IDCC spins the news to suit their purposes The puny settlement with ERICY was certainly bad news and yet the CEO at the CC started out with "The sun is shining in KOP today". He painted the beautiful scenario of our being paid by NOK and Samsung in a "specific number of DAYS" (incidentally it has already been 14 days) Until this settlement I felt we had an 80% chance of winning big by this July. Now I feel we have an 80% chance of winning small by next July. Insiders are selling again. I guess I can now understand why the sun really is shining for them in KOP.
IDCC declared independence from NOK at CC
I would like to agree with you when you state:
"I am going to assume that IDCC had the go ahead from Nok before they settled with Ericy. Thus, there should be no need for mediation. I hope that the 10k is much clearer than the press release and CC."
However IDCC's attitude towards NOK at CC seemed to me to be more "in your face" than "thanks Dad".
Current insider selling may be a curve ball. While insider selling is never a positive, it is usually legal. A flagrant exception to this occured in 1999 when there was a huge amount of insider selling while management but not the public had material information that the NOK "licence" depended almost completely upon a favorable settlement with ERICY to establish a royalty rate. Management, since then, has done two things to cover itself. They recently, albeit belatedly, released the details of the NOK deal and then they settled "favorably" with ERICY. Now they may have encouraged insider selling, even though good news is imminent, just to prove that they are selling on a regular basis, not only when they have kept material information to themselves. Also, they must keep selling as they award themselves more options because if they did not, they would own or control an unseemly percentage of IDCC stock.
My take is that NOK had continued to refuse to agree to a rate with IDCC before the resolution of the ERICY dispute. NOK was hoping for an IDCC loss and a rate of zero. This NOK intransigence put temendous pressure on IDCC management to settle with ERICY even for inferior terms. The reason is that IDCC had maintained secrecy about the details of the NOK deal( until recently when they thought better of it) and then since they understood the true nature of the deal, they profited through their selling the stock. (I always wondered why they would sell their stock when IDCC had a deal with NOK that was supposed to soon bring in large royalty payments -now I wonder whether M.G. was sqeezed out as CEO because he couldn't stomach what was going on.)Yes, NOK will pay but I fear they'll probably wait until arbitration is completed in 2004 and then they won't pay all of what they should. In the meantime the message of the ERICY settlement to other telecoms is "Don't pay IDCC. Litigate and you'll get a better deal. Now lets see if management awards itself more options for this "stellar" performance.
Nok will definitely pay. The question is whether they see any downside in arbitration. Idcc has offered a discount if they pay promptly and this may induce them to pay. Unfortunately any contract with an MFL clause opens the opportunity for quibbling by unethical companies. I hope Idcc has learned its lesson about MFL contracts and issues none in the future.
NOK timely payments make the recent settlement palatable. If they pay within the next two months then the settlement was a step in the right direction. If they elect to arbitrate, which H.G. has said he does not expect will happen, then the settlement becomes a stinker and IDCC management who agreed to it looks like fools, incompetents, or people protecting their own interests. BTW where is a 3G agreement with our new found ERICY friends, who H.G. applauded for their integrity.
Reason for 8K release is probably that these contracts are material and, either with or without prodding from SEC, IDCC decided to release.
Ronny, shooting the messenger who presents facts that some people don't want to deal with is a time honored tradition. Keep up the good work. No one has contributed more substance to this board than you have in the last three years that I have been around it.
TWFG
As institutions get a greater amount of IDCC stock, they will tend to hold it till after the Ericy case is resolved. This could cause the stock price to rise in the next few months and even precipitate a short squeeze. IMO
Ronny
Thank so for all the incredible work you have contributed in bringing to lite and detailing this problem. I do believe that your efforts have helped all of us, even management, in refining this operation. We have a goose which is about to lay a golden egg and even though we may never convert the goose to a swan, you have helped us in assuring there will be enough in the eventual omlet for all of us.
Ericy has painted themselves into a corner with this PR. I'm not sure why they would have done that since they are now in a position to lose credibility if they reverse course and decide to settle at ANY time.
Loop
I have read and reread your post 7999. I have been long IDCC since November 1999 and I bow to your more complete experience with the company.
Perhaps the most important part of your post is the idea is that we will collect for 3G even if we lose Ericy. If you assume that this idea is correct, the value of IDCC shares has to be in excess of its present market price EVEN FACTORING IN A LOSS TO ERICY. To put it another way, the market has already discounted a loss to Ericy. This defies reason since the odds are that IDCC will prevail in the Ericy case. Perhaps I am missing something. I have been in the market for a while but I can't remember a situation quite like this.
Zip
Danny
I think we may have already done some good. I have a hunch we have gotten their attention. Now,I agree with you. We have to cool down, swallow hard, and let them do their job. Like it or not, we are on the same team.
Danny
It is nice to see that J.P. answered your E mail promptly. I remember when you communicated with management a while ago regarding a number of suggestions that you brought from Jim's board, their eventual response was far from satisfactory. What has changed since then?
Loop, you are missing the point
Trust, in general, is the big issue here. The options are disturbing but what is MUCH MORE disturbing is that they have given the public the impression that they had signed NOK to a lease that was about to secure our future when in fact they knew that all we had was a crap shoot. In the mean time they have sold stock at huge profits. I believe that Harry is hedging in case of a loss in ways that are not available to us. He is playing a game of heads I win, tails I win. That is what bothers me.
Why the character of management is important:
If the result of Ericy turns out not to be as we all wish, management will have to make several decisions. Should they be patient and wait for 3G revenues to kick in? Should they be aggressive and bring 3G infringement actions? Should they merge with a manufacturer. What perks will they get if they do?
In each of these decisions you can be sure of one thing. They will look to what is in their best interests and ignore the interests of the shareholders. They have enough of a track record for that statement to be made.
Ronny, Harry may not want institutional investors.
If a really large percentage of the stock were held by institutions he might be hesitant to pull some of the stuff we've been seeing. However, looking at it from his point of view, he may feel that to invite some individual investors and not others to an informal meeting including institutions might run afoul of the FD rules. Our best hope is that we win over Ericy and from that event attract a large institutional following that may act as a stimulus to change management's ways.