After spending almost six months reviewing its business strategy, Ottawa-based WiLAN says it now plans to refocus its operations and increase the dividend it pays to shareholders.
By Jacob Serebrin
The patent licensing firm began the strategic review at the end of October, motivated by a low share price that executives and board members say undervalues the business and its future prospects.
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“We looked at all alternatives and a sale was one of the alternatives,” Jim Skippen, WiLAN’s CEO, told investors on a conference call on Wednesday evening. “I can confirm we did receive a number of expressions of interest, but in the end the board did not feel that any of the offers received satisfactorily valued the company, especially in comparison with the alternative of carrying on with business.”
Mr. Skippen said the company has done well over the past two quarters, with strong earnings, new licensing agreements and victories in the courtroom. With that in mind, he said, “the board has determined that shareholders are best serviced by evolving our business plan.”
The new plan will see WiLAN (TSX:WIN) change how it licenses and acquires patents in an effort to increase revenue while reducing costs and risk.
One of the biggest elements of the plan is to divide the company’s patent portfolio into a number of smaller technology-specific subsets, with each one of those available for licence individually.
Previously, the company only sold licences for its entire portfolio of at least 4,500 patents.
This move will be “better received by licensees,” said Mr. Skippen. “Licensees only want to pay for the patents they actually use.”
He said the move will also “decrease the need to litigate.”
Lowering litigation costs is another key part of WiLAN’s new business plan. Mr. Skippen said WiLAN also will ensure that its lawyers take on some of the risk in any legal proceedings.
According to Mr. Skippen, the company has already reached an agreement with Texas-based law firm McKool Smith, with which WiLAN has worked extensively. That deal will see WiLAN pay its lawyers a fixed amount on a monthly or quarterly basis, paying them a percentage on the licensing agreements that come from their work.
“They will only get more money when we are successful in signing a licence,” said Mr. Skippen.
“And if the licence is not for enough money, they won’t get any additional money.”
While litigation may be a lower priority for WiLAN, it won’t be off the table.
“We are still prepared to litigate; we will still litigate where necessary,” said Mr. Skippen. “I just think overall we are going to focus a little bit more on what I would call good-faith negotiations and be a bit slower off the mark to litigate.”
The company plans to keep a significant amount of cash in the bank for just that reason, Mr. Skippen said.
“In our business, it’s very important to maintain a strong balance sheet, because you need to demonstrate to parties that if you do get into litigation that you can handle whatever they can throw at you and that they can’t outlast or outspend you into submission,” said Mr. Skippen.
At the end of March, WiLAN had more than $140 million in cash and cash equivalents.
The company also plans to focus on partnership agreements, rather than buying patents outright, similar to a deal it reached with Panasonic in December and the business model it pursued through its Gladios subsidiary, which is now being wound down.
“We realized this is the way we want to do all our licensing,” said Mr. Skippen. “There’s an awful lot of patents out there that people want to sell. We actually don’t really want patents that people want to sell, we want patents that people want to keep.”
He said negotiations around several partnership deals are already ongoing.
“All we need are a handful of high-quality partners like Panasonic to really transform our company and I’m confident that we are going to get them and it’s just a matter of time until we’re making announcements about them,” Mr. Skippen said.
The company may also sell some of its less profitable patents to save on maintenance costs.
“As part of the review, we realized that we’re carrying a lot of patents,” said Mr. Skippen. “What makes sense for us is probably to divest a number of those patents or even possibly to abandon them, if they aren’t adding value to our company. That’s a process that we’re really just starting now, but we may be interested in selling as many as 2,000 of our patents.”
WiLAN has also increased its dividend by 25 per cent to $0.05 per quarter per share. The company also plans to buy back 10 per cent of its outstanding shares for cancellation, through a normal course issuer bid. As of March 31, WiLAN had a weighted average of more than 120 million diluted shares.
Shares in the company fell at market opening on Thursday, the first day of trading after the new business plan was announced. Early on Friday afternoon, they were trading at $3.30 each, still down from the closing price of $3.55 on Wednesday.
