UPDATE: Dividend increase more likely than sale for WiLAN, analyst says

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Ottawa-based intellectual property company Wi-LAN (TSX: WIN) is considering strategic alternatives after a recent drop in its share price but one analyst thinks a sale still isn’t very likely.

(Stock image)

By Jacob Serebrin

“Strategic alternatives run the gamut,” said Justin Kew, an equity research analyst at Cantor Fitzgerald Canada.

Mr. Kew said he thinks it’s more likely that the company will increase its dividend than sell. He declined to speculate on who might buy the company.

WiLAN announced the strategic review on Wednesday morning, one week after the firm’s stock price dropped upon news it had lost a legal battle with Apple. The stock was higher following the announcement.

“The frustration by the chairman and the board is understandable,” said Mr. Kew. “The market is ascribing no value to their portfolio.”

WiLAN opened the door to selling itself with its announcement Wednesday that it was considering strategic alternatives.

“The company strongly believes in its current business strategy but does not believe that its current share price accurately reflects its strong balance sheet, the value of its signed license agreements, its business prospects or the residual value of its broad intellectual property portfolio,” the firm said in a news release.

This means the company, one of Ottawa’s most valuable firms by market capitalization, will begin looking at a potential sale or new operating models, the news release said.

It will also look at changing the firm’s dividend policy, acquiring or disposing of assets or a becoming part of a joint venture.

The company, which generates revenue from a portfolio of roughly 3,000 patents, said it is also looking at continuing with the current business plan.

But Mr. Kew said he thinks the market is undervaluing WiLAN’s patent portfolio and the value of the company’s license agreements.

A research update written by Mr. Kew dropped the one-year target price for WiLAN stock after the loss against Apple from US$6 a share to $4.80 a share.

But the target price and the “buy” recommendation from Cantor Fitzgerald hasn’t changed after Wednesday’s announcement.

In a research note issued the same day, Mr. Kew wrote that he “we could envision the board dividending out $60 million.” That would be around 50 cents a share.

WiLAN has around $160 million in cash on hand, which according to Mr. Kew is enough to continue its ongoing litigations and increase dividends.

“Management has spoken in the past of maintaining a minimum cash balance of $50 million to run the business and being comfortable with $100 million,” Mr. Kew added.

The loss against Apple isn’t expected to impact other license agreements, he said.

WiLAN tried to assure investors that the decision would have minimal impact on its value because it was just one patent that expired in three months.

However its stock price dropped from $4.08 to $3.16 in the day after WiLAN lost the legal decision.

On Wednesday its stock price increased slightly. By 3:25 p.m. it was up 19 cents at 3:25 p.m. to $3.30.

That is down from a 52-week high of $5.44. It also comes after a turbulent summer in which the price reached a high of $4.98 in July before fluctuating under $4.00 until September.

–With files from Mark Brownlee

Organizations: Apple

Geographic location: Ottawa, Texas

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  • tech savy
    October 30, 2013 - 19:29

    Disagree completely. With almost 37 million shares traded since the Apple loss last week it is more likely accumulation is occurring and a hostile bid is on its way. If so, Wilan is doing this to try and get a friendly bid or merger going instead. (The CEO has said in the past they have been approached by other companies to which they declined.) The shareholders do not want a dividend they want Wilan to be bought or merged so that true value can finally be realized. What has become clear is that we need to owned by a US company. A little Canadian company will never beat a US company like Apple in court. The flawed "justice" system in the states with laymen juries being able to overturn Unites States Patent Office approved patents is simply absurd. Wilan will most likely be sold.