Ottawa-based MOSAID Technologies Inc. (TSX: MSD) has ended a hostile takeover fight with competitor Wi-Lan Inc. by agreeing to be purchased by its white knight, private equity firm Sterling Partners.
Analysts say becoming private will benefit MOSAID in the long-term.
MOSAID’s deal with Sterling Partners, at $46 a share, trumped the $42 per share takeover bid by intellectual property rival Wi-LAN.
MOSAID’s management approved the offer on Oct. 27.and shareholders will vote in December. If all goes as planned, the deal is supposed to be complete around Dec. 23.
Sterling Partners is a company that invests in other businesses in order to maximize the potential of those businesses.
LONGSTANDING POTENTIAL
Many in the business community have recognized MOSAID’s potential. For example, in 2011 CanTech placed MOSAID number two on its top ten list of technology company stocks to watch.
“In our case we’re looking at no layoffs at all and the head office and the executive function is in Ottawa and remains intact.”
MOSAID was founded in 1975 and became a publicly traded company in 1993. It licenses intellectual property patents and also develops telecommunications and semiconductor technologies.
In the fiscal year 2011, MOSAID reported $80.5 million in revenues, an increase of 13 per cent from the previous year. The company has seen an increase in annual revenue consistently since 2003, when it brought in $38.2 million in revenues.
Senior Director of Investor and Corporate Communications Michael Salter says little will change at MOSAID after it becomes private, The company will still have opportunities to expand from its current base of 60 employees and Sterling Partners says it has no plans to change MOSAID’s current management.
“It’s very typical when Canadian companies get taken over, particularly technology companies, that the top management leave and that’s what has happened in many cases in Ottawa,” he explains. “In our case we’re looking at no layoffs at all and the head office and the executive function is in Ottawa and remains intact.”
NO CHANGES EXPECTED
Northern Securities analyst Sameet Kanade also thinks little will change at the MOSAID.
“So if you’re not a publicly traded company you probably don’t have to have the people around to worry about the legal and accounting and communications issues that you would have as a public company.”
“You’re not looking at a micro company. You are looking at a company that generates close to $100 million in revenue each year,” he explains. “When you have strong patent portfolios it’s unlikely that Sterling Partners would try and reject what’s going on there because you don’t kill a cash cow.”
Salter also says that becoming private will allow the company to concentrate more on business.
“In a private situation you don’t have to worry as much about achieving short term growth targets,” he says. “Sometimes public companies wind up focusing on doing things in order to get that short-term growth to make shareholders happy and in a private company situation it is a little easier to focus on long-term growth objectives.”
BMO analyst Brian Piccioni also says he thinks MOSAID will save money by becoming private.
“There’s a personnel cost associated with being a publicly-traded company,” Piccioni explains. “So if you’re not a publicly traded company you probably don’t have to have the people around to worry about the legal and accounting and communications issues that you would have as a public company.”
Kanade says MOSAID will benefit from becoming private because it will be easier to keep patent contracts confidential, as disclosure rules are much less stringent for private companies.
BACK TO BUSINESS
Kanade also says it is good the takeover is no longer a distraction.
“Now that they’ve got an offer on the table it’s much easier for management to focus on what essentially they should be doing, which is the core business as opposed to trying to worry about whose taking them over,” he says.
MOSAID released its second quarterly report on Nov. 23 that included spending $4.2 million on a special committee, almost certainly related to the takeover bid process.
During the second quarter, MOSAID’s net income dropped to $6.4 million from $9.8 million at the same time last year with revenue of $20.2 million, little changed from the $20 million reported in the same quarter last year.
The company did announce it has acquired 2,000 wireless patents from Nokia, which are expected to bring in further revenue and that it is producing the fastest flash memory device in the industry.