InterDigital Inc (IDCC)

[hock1]

Re: potential buyout. I agree somewhat with the post by Romuluss yesterday which opined that a "going private" transaction is in the works. I have no idea whether management is involved but, in the following analyses, it is irrelevant. This is what I believe (and have thought for a while) is happening:

Suppose you were a private equity firm (or any other entity with an interest in IDCC and cash). Say that you know, at $50 per share, the purchase of IDCC would produce a 13.5% pre-tax return (rounding numbers off for simplicity: 44M shares X $50.00= $2.2B minus the $600M in cash is a net outlay of $1.6 B. The projected pre-tax net revenue for this year is about $215M which equates to a 13.5% ROE.

Now suppose that you utilize short sales to "cap" the stock. Further, you end up shorting a net of 5M shares at around $25.00.
As a result of this "cap", you deem it reasonable that the board of directors would be obliged to accept a $35.00 offer. (a 40% premium).So, now you pay $1.54B (44M shares x $35.00) plus $50M for covering the shorts (5m shares X $10.00)or, $1.59B. Subtract the $600M in cash and it costs you $1.0B for the $215M in pretax net reveues or a 21.5% ROE.

I have proposed this explanation several times on this board and have been bashed by the "truth squad". So, bring it on.

Incidentally, I believe that if this scenario is true, there is an entity that is currently short well in excess of 5% of the outstanding shares. A level at which, if you were accumulating the stock for acquisition purposes, you would have to file a 13-D. This entity may believe the lack of a requirement to report large short positions provides them with impunity. However IMO, a carefully crafted action against someone trying to pull this off would ultimately force the discovery of their actios.