InterDigital Inc (IDCC)

[The Count]

Why would an acquirer pay through the nose?

Because they have to.

I think that IDCC shareholders would accept a buyout offer of under $100 if the choice was take it or leave it. However the hope is that we aren’t going to have to sell at our minimum acceptable bid because there are multiple companies interested. In that case the sales price becomes a bit higher than the second highest bidder is willing to pay. To use your restaurant analogy, IDCC has a prime location that would draw a very profitable clientele under the right guidance. The profits will allow you to expand your chain beyond just the value of this location. In addition, if your competitor gets it, they will be able to increase their market share at your expense. So you are going to be willing to pay more than the restaurant would be worth as a single unit because of the value it brings to your chain, and the difference between your chain's value with this restaurant making your chain stronger and your competitor’s chain weaker versus the reverse if your competitor buys it.

I am really happy that the BOD has engaged Barclays and Evercore to help them maximize the valuation. Do I think Joel’s projections are likely? No, I think he is looking at the best case in the same way that IDCC sees its licensing as best in class, more fanciful than factual. However I do see M Partner’s analysis as being reasonable and a buyout in their range of $118 - $167 as a very real possibility. It might even go higher, but I think a multiple of those levels is unlikely. I sincerely hope Joel is right.

From M Partners report:

TIPPING THE SCALES: FEAR VS. GREED

• With IDCC shares closing at $69.77, the current price is only 6.5% above our pre-takeout target. Our pre-takeout target did not include any award from Nokia for past infringement or for future licensing, or value the potential of the company’s video compression inventions.

• IDCC reached a 52-week high of $82.50 on the hells of nest ha it was exploring strategic alternative, before retreating to yesterday’s closing price. As a result of the cancelled conference all and guidance, we believe that the probability of a sale to a strategy acquirer is now higher than it was several days ago when the share price reached $82.50.

• We reiterate our BUY recommendation and $118.00 target price.

At this level, the downside for owning the stock is far less than the potential upside. If we can get a positive CAFC result, then I would expect share price based on fundamentals (no buyout) to approach current levels on anticipation of Nokia signing, and higher with the execution of a good contract, leading to other companies signing. I'm very comfortable holding stock at these levels.