In 2011, Nortel Networks $4.5 billion sale of patents to a consortium of tech blue chips valued each of its patents at roughly $750,000 and AOL's (AOL - Get Report) recent $1 billion patent sale to Microsoft (MSFT - Get Report) valued IP at an even higher number, notes Erlickman. In contrast, he calculates that InterDigital's sale valued each of its patents at just $220,000 million, signaling the dilutive impact of existing license agreements.
As part of the deal, InterDitigal is selling just a fraction of its overall patent portfolio, which was expected to fetch up to $3 billion in a sale to Samsung or Intel, according to reports by the New York Times last fall. However, the company now may be parting with its crown jewel patents related to next generation smartphone technology for just $375 million. "These likely are the prime patents of the InterDigital portfolio," says Erlickman of Monday's sale.
While InterDigital shares jumped over 27% on the news of its deal in Monday trading, that lift was needed to pull shares from a near 50% year-to-date share drop on waning earnings and diminished IP sale prospects. It's a signal that investing in patent-rich companies requires has perils, even after Google's (GOOG) $12.5 billion acquisition of Motorola Mobility (MMI) and other richly priced deals.
"We announced at the start of the year that InterDigital would seek to broaden our strategies to monetize our patent portfolio through sales, licensing partnerships and other means, and the transaction with Intel is a significant milestone in those efforts," said InterDigital chief executive William J. Merritt in a Monday press release."In addition to patent sales, InterDigital is committed to our previously stated goal of generating $800 million in sustainable annual revenue in the next three to five years," added Merritt, who noted that the funds raised in the deal will help drive further licensing and investment in future innovation. Intel's cash offer for InterDigital's patents will help the world's largest chip maker support its growth ambitions in mobile devices, while strengthening its IP portfolio against litigation, said RBC Capital Markets analyst Doug Freedman, in a note to clients. Erlickman adds, "It will allow Intel to continue to be a major player in the processing of chips that go into cell phones."