Yesterday, InterDigital announced that Intel had agreed to buy 1,700 of its patents and related rights for $375 million in cash. These represent a sizeable fraction of InterDigital’s 20,000 worldwide patents and applications. The news saw InterDigital stock, which was at a 52-week low on 11th June and had some wondering whether it could ever recover, jump from roughly $23 per share to more than $30 per share, settling down to around $29 as the volume subsided.

The deal was exactly the kind of thing that investors should have expected once InterDigital announced in January that it had decided against selling its whole portfolio, with reports at the time stating: “InterDigital and its advisers decided that the company was better served by ending the auction and focusing on selling off pieces of the portfolio, this person said. Any such deals are still weeks away from completion, however, and those transactions are likely to fetch only low hundreds of millions of dollars at most.”

Thus, the company saw its value increase by just under one-third for doing precisely what it said it was going to do six months ago. Nevertheless, stock trading publication Seeking Alpha said that the deal was a bad one for InterDigital: “Initially the deal sounds like a solid move on InterDigital's part,” the publication wrote, “but in reality the company has just sold off its best patents to Intel. Some of the patents sold to Intel include 3G, LTE, and 4G connectivity. In addition, Wi-Fi patents related to 802.11ac have been acquired as well.”

I asked Rob Aronoff, managing partner of Pluritas, LLC in San Francisco, and someone who has done his fair share of patent-driven to share his views on the transaction. This is what he said:

As is often the case with Wall Street or financial media IP portfolio analysis, assumptions have been made without the proper information or experience. InterDigital likely had more than ample fire power and probably some portfolio redundancies. It is highly unlikely that InterDigital would sell 1,700 of the very best assets leaving it little or no room to operate (the “crown jewels,” so to speak). InterDigital is too smart to do this and far from that desperate. The meaning of the sale not only depends on what was sold, but how the deal was structured, and there is no way for us to know that at this time. Seeking Alpha is making irresponsible assumptions about InterDigital’s remaining value.

InterDigital’s market capitalisation prior to the sale was about $1 billion. After the transaction it rose to $1.3 billion. That some 30% increase in market cap was created directly by the sale. Not bad for selling a small portion of the company’s hidden assets. InterDigital loses little and gains cash which can be reinvested in aggregating new assets and creating new lines of licensing business. It also will be used to buy back $100 million worth of shares.

Intel picks up much desired 3G, LTE and 802.11 wi-fi patents at an average of just $220,000 per patent. This represents a 65%+ percent discount per patent to what Rockstar Consortium buyers paid for the Nortel patents, and Google paid for its 17,000 patents in its Motorola Mobility purchase.

Whoever said that selling IP rights to unlock value is just for distressed companies has been proved wrong, again.

Sectors

Patents, IP business, IP valuation

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