本文发表在 rolia.net 枫下论坛Investment Highlights:

• An industry leader in semiconductor IP development and licensing
• Poised to become a pure play in patent licensing through ongoing restructuring initiatives
• New patent acquisition fuels future growth
• Stock mispriced from both valuation standpoint and takeout perspective

Much of 2006 and 2007 to date has been a quite eventful period for this Ottawa-based semiconductor IP developer and licensor. The 11th-hour agreement reached with New York hedge fund Loeb Partners in advance of the annual shareholder meeting on September 22, 2006 ended a bitter-tasting proxy fight but marked the beginning of a prolonged boardroom battle, which culminated in the ouster of the company’s CEO, CFO, and the Chair in April 2007. All roadblocks have been cleared to transform the company from a mini-conglomerate structure to a pure play in patent licensing, a path prescribed by Loeb Partners at the onset of the proxy contest.

The stock suffered in late February when the company made two significant announcements together with the release of Q3 results. First, it sold its underperforming Systems Division to Teradyne (NYSE: TER) for $20 million in cash (net $16 million). The second announcement related to the acquisition of a portfolio of WiFi and WiMAX patents from Agere Systems (NYSE: AGR) for $70 million. On concern that Mosaid may have overpaid for the patent portfolio, the market sent the stock tumbling more than 20% within a couple of weeks (from a pre-announcement closing price of $29.65 on Feb 22, 2007 to as low as $22.89 on March 14, 2007).

As Benjamin Graham suggested, intelligent investors profit from opportunities arising from the swing of the market pendulum driven by “unsustainable optimism” or “unjustified pessimism”. I picked up shares at $24.91 in my Absolute Return portfolio as I believe the stock was significantly undervalued. Under an extremely unlikely worst-case scenario, I assumed that Mosaid had not just overpaid but had squandered away $70 mm – for nothing. The present value of $70 million came in at $54 million or approximately $5 per share, discounted at 10% over the agreed-upon payment schedule. Subtracting $5.00 from DCF-based valuation of $33.11, I got $28.11 per share. My DCF model is based on what I believe are very conservative assumptions: growth rate (year 1-5) 10%, terminal growth rate 2%, cost of equity 10%.

More realistically, building the expected $200 million revenue (management guidance) from the new patent portfolio over the next five years into my model, I believe the company is worth at least $40 per share.

With the recent announcement of management shake-up and the company’s intention to dispose of its semiconductor IP business, Mosaid is well on its way to become a pure play in patent licensing. The market will eventually catch up to the valuation it deserves, or it will be taken out. The latter becomes increasingly likely given that new management suggested that the company was open to sale and that the return-minded hedge fund Loeb Partners is now effectively in the driver’s seat.更多精彩文章及讨论，请光临枫下论坛 rolia.net