Wi-LAN nets Intel

If you’ve not been following the success that Wi-LAN (WIN:TSX) has been having on the patent front (see prior post “Wi-LAN plays it smart with Telus” Feb 8-10), it’s time to sit up and take notice. Calgary’s Wi-LAN has bagged $50-$100 million from Intel (INTC:Q). Here’s the Equity Research note from Fraser Mackenzie:

Intel Falls – Signs Multi-year License Settling All Litigations

Event

· WiLAN announced today that it had signed a Memorandum of Understanding (MOU) with Intel. The MOU sets forth terms for Intel to take a multi-year license of WiLAN’s patent portfolio, make payments and dismiss all litigation between the two companies in the District Court for the Eastern District of Texas and in the U.S. District Court for the Northern District of California. The company expects a definitive agreement to be signed in the next few weeks.

Discussion

· This is the largest deal WIN has settled in its history. The terms were not disclosed, but from our analysis we believe the settlement is between $50-100M (approximately $0.50-1.00 per share), recognized as revenue over 5-7 years.

· We also believe, given Intel’s importance in the syndicate and its early settlement, WIN could use the deal much more strategically in discussions with remaining parties. This is why we believe Intel will likely have agreed to a better deal and others will have to pay higher amounts in future. For context, Broadcom and Atheros are bigger than Intel in terms of their product infringements. We believe Broadcom could settle at 2 times and even Atheros could be larger than Intel. If all parties settled at similar levels as Intel, we estimate the total should reach the lower end of the ballpark range $500-700M ($4.70-6.50 per share) that we have been estimating.

· This is a great win for WiLAN but market expectations might have been higher based on Intel’s market cap. Investors should note that the settlement size is in proportion to the extent of infringement and not to market capitalization.

· Intel was the leader of the pack and the remaining 15 companies in litigation with WIN will likely feel rudderless due to Intel’s sudden departure. As a result, we expect most of them to cave in and settle before trial. We therefore have estimated a higher probability of success and believe there is an additional $4 per share of value for further settlement arrangements. Including the settlement reached to date, this results in a new target price of $9.00.

· We raising our target to $9.00 (up from $8.00 previously) and retaining a Strong Buy recommendation.

MRM