Thursday, August 09, 2007

Hostile Shareholder Takeover, Patent Style

An interesting story surfaced yesterday over the patent portfolio of Redwood City-based Ampex Corporation, and its relationship with investment fund ValueVest.

For those that may not be familiar with Ampex, the company was responsible for releasing the first commercial tape recorders in 1944. After failing to transition into the digital arena, the company was bought out in 1987. As far as products go, the company's output didn't improve - today, the company's sole product is a data storage device used in defense systems and manufactured in Colorado.

But in the patent world, Ampex sat on a lucrative portfolio that included one patent that claimed to cover basic digital imaging. Three years ago, Ampex went on the offensive with their patents, and reported profits of $47.1 million in 2004 on revenues of $101.5 million. In 2004, Ampex posted the single largest gain of any Silicon Valley stock, rising from 68 cents to $39.50.

Seeing an opportunity, ValueVest began buying stock in Ampex in April 2005, just a few months after its spectacular stock run. Today, the investment fund claims to hold 13.7% of Ampex's stock. Shortly after its buying binge, ValueVest partnered with M-CAM, Inc., a company "specializing in intellectual property finance, monetization and enforcement", to evalute Ampex's portfolio.

They liked what they saw.

M-CAM controls a proprietary database and search engine to analyze patents and their strength or weakness regarding commercial validity and potential value. It is rumored that M-CAM has partnered with PUBPAT, and used their software to target Forgent’s JPEG patents, Pfizer’s Lipitor patent, Microsoft’s FAT patent, WARF’s stem cell patents and others. Supposedly, after analyzing the Ampex patent portfolio, M-Cam has decided to join with Ampex to enforce their patents (see press release here).

Recently, ValueVest has become impatient with Ampex, claiming that not enough "value" is being extracted from the portfolio. In a recent 13D/A filing, ValueVest stated that "the market price of the Company's Shares does not fully reflect the underlying value of the Issuer's assets and businesses."

ValueVest has considered buying Ampex, but the negotiations didn't pan out. Now, what appears to be a first move of its kind, ValueVest has made a hostile bid for Ampex - not for the entire company, but just for its portfolio of 450 patents (which is technically considered an unsolicited term sheet).

ValueVest wants to buy the patents, create a new company, and invest fresh money to research which patents could form the basis of new products or a potential litigation strategy. On July 20, ValueVest disclosed in a filing with the SEC that it had offered to buy Ampex's patent portfolio for $7 million. Based on its current market capitalization, Ampex is worth about $32.6 million.

• Read "Stakeholder makes play for control of Ampex patent portfolio," San Jose Mercury News (link)

• See SEC Investor article "ValueVest Sees Value in Ampex IP" (link)

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