Wi- Lan finds new life in Ottawa
Once struggling firm has found a profitable niche in patent rights
Ten months ago, Calgarybased Wi- Lan Inc. was just another wireless products company without much of a future. Yesterday, it vaulted past Corel to become Ottawa’s second most valuable high- tech firm ( behind software giant Cognos). WiLan shares finished the day at $ 5.73, giving it a market capitalization of $ 388 million.
It has been a stunning transformation — made all the more remarkable by the fact Wi- Lan employs only 10 people.
The source of its stock market wealth? Wi- Lan owns nearly 150 patents covering mainly wireless technologies. Its business consists of notify- ing high- tech corporations such as Nortel, Cisco and Nokia that they are infringing these patents — and then convincing them, through litigation if necessary, to sign royalty arrangements.
To succeed in this business, you need negotiating clout — which means lots of money, legal expertise, enforceable patents and a winning track record. In an astonishingly short period, Wi- Lan appears to have secured all the necessary elements.
The biggest boost to its credibility came last month when Nokia, the globe’s No. 1 maker of wireless handsets, agreed to pay $ 49 million to license Wi- Lan’s entire portfolio of wireless technology ( which includes WiFi, CDMA and Wimax variations).
Under the terms of the deal, Nokia paid $ 15 million cash and transferred $ 34 million worth of wireline patents ( ADSL technology) to Wi- Lan.
The Nokia breakthrough was no accident. When Jim Skippen took over as Wi- Lan’s CEO on June 20, one of the first things he did was book a flight to Finland — a task made easier by Wi- Lan’s previous dealings with Nokia. Twelve days later, Skippen was in a Nokia boardroom explaining how the Finnish giant was infringing Wi- Lan patents.
With the Nokia deal secured, Wi- Lan promptly raised $ 30 million by issuing 6.7 million common shares, closing the deal before Christmas. By yearend, Wi- Lan had $ 60 million in cash.
This should give Skippen a strong hand when approaching firms he believes have infringed Wi- Lan patents. He is already in talks with 10 corporations about possible royalty arrangements, though he stressed yesterday it could take up to two years before deals are signed. In only half of these cases have discussions progressed to the question of money.
Skippen, 44, speaks with an easy familiarity about these matters, as he should. He worked for nearly a decade as a patent lawyer in Toronto before taking a job in 1996 at Mosaid Technologies — the Ottawa computer memory specialist that began licensing its patents shortly after Skippen’s arrival.
In the course of developing Mosaid’s patent arm, Skippen kept an eye out for portfolios of intellectual property that Mosaid might acquire. He had a look at Wi- Lan’s patents in 2005 and convinced Mosaid to make an offer.
Wi- Lan rebuffed the Mosaid approach — presumably because the offer wasn’t rich enough. But Skippen had clearly impressed Wi- Lan’s board of directors.
Wi- Lan at the time was a peculiar entity. Founded in 1992 in Calgary, the company was very early to develop broadband wireless products. It raised about $ 10 million in an initial public offering in 1998 and watched its share value soar to ridiculous levels — $ 1.5 billion plus — during the tech boom.
The strange part was WiLan was never able to develop a profitable business making wireless products.
By early 2006, the company was running out of money. Wi- Lan sold off all its product lines to three separate companies — including EION Wireless of Ottawa.
“ It’s a risky move, but it’s also a gutsy move,” the analyst said. “ You have to give credit where credit is due. They did what they had to do to get the deal done.”
At CanWest’s annual shareholders meeting in Toronto yesterday — which was attended by Alliance Atlantis’s top executives Michael MacMillan and Phyllis Yaffe, CanWest chairman Derek Burney acknowledged the Alliance transaction “ is not without risk.”
But he said directors “ are confident that our management team will meet the challenge.”
Mr. Shine, the National Bank analyst, said it made sense for CanWest to structure the deal in a way that does not depend on today’s market value of the company’s conventional TV operation, which also includes the smaller CH network.
“ The market appears to be giving Global/ CH a value of close to $ 400 million, which is ridiculously low,” Mr. Shine said in a note to clients.
Global’s earnings plunged over the past couple of years as more hit shows were purchased by CTV and advertising dollars flocked to the rival network. But, in the first quarter, CanWest’s Canadian TV earnings ( before interest, taxes, depreciation and amortization) rose 30 per cent, with revenue up 11 per cent. “ We believe our Canadian TV and newspaper recovery theme is very much intact,” Mr. Shine told clients.
The analyst does not anticipate a bid trumping the CanWest- Goldman Sachs deal because Goldman dealt with assets CanWest didn’t want, including a 50- per- cent stake in hit TV show CSI and its two spinoffs.
CanWest executives said yesterday that talks with Goldman date back many months, and the bank has been interested in adding Canada to the list of countries in which its private equity funds have media holdings.
“ With our balance sheet, we could not write a $ 1.5- billion cheque,” said Mr. Asper, explaining the structure of the deal. He said he does not expect a regulatory review by the Canadian Radio- television and Telecommunications Commission to create problems for the Alliance Atlantis deal.
“ The CRTC cares about who controls the programming ( and) who has the voting power. We have the voting power,” he said. “ There’s no constraints on our ability to program the business as we see fit, so we think it meets all the tests … ( Goldman’s) position can never get any better. It’s simply a question of how they exit and when they exit.”
Jim Skippen, a lawyer by training, has made Wi- Lan into a powerhouse through the cunning application of patent law. The Ottawa firm buys patent licences, then goes looking for big firms that may be infringing on those rights. It’s the city’s second...
CanWest CEO Leonard Asper, left, and Michael MacMillan, executive chairman of Alliance Atlantis, pitched their $ 2.3- billion deal to shareholders yesterday at CanWest’s annual general meeting.