Anyone have a good handle on the worst case, best case and most likely outcomes? I have some reservations about USAA and what it is trying to achieve. Are they trying to avoid paying past obligations? Are they trying to hurt other competitor banks by hurting Mitek? Are they trying to milk some value out of Mitek directly?
It doesn't seem like a core business value adding agenda for USAA to engage themselves in. At the end of the day what does USAA want and why?
USAA simply did not want to pay MITK higher fees than they were paying going forward. MITK wanted to put them on the same plan as everyone else, especially since USAA was exceeding the allowable transaction numbers anyway. My guess is there were fighting over about 400K a year. So in the end the lawsuit is about money, pure and simple.
USAA's position is simple: They contend their prior use of a scanner and computer to deposit checks is the same as MITK's photo deposit using a cell phone camera. Both take a pic, both are digital.
IMO USAA felt MITK would just give in shortly after they filed, especially since the news of the lawsuit knocked about 100M in market cap off of MITK. Now that MITK has not caved in, USAA's position is to milk this out as long as they can and hope for the best (no one on either side has extended an olive branch...yet).
In the long run USAA has a very weak hand, but they have money, time and a backed up court system on their side so MITK has incentive to settle also.
Although as time passes and MITK's share price and market penetration increase the ball falls further into USAA's court to press for a settlement....because in the end they have no case.
IMO MITK should have settled the lawsuit with USAA, then did the secondary. They could have generated twice the cash (selling for 10 bucks instead of 5), which in the end is more than they will get for USAA.
But sometimes harder heads prevail....such is life.
Nice post, but I would offer a few additional thoughts. First, it's important to note that the USAA point man on the MITK relationship left USAA to head IT for another bank shortly before the contract was up for renewal. (One of many disgruntled managers to leave under the new management, I'm told. He also contracted with MITK almost immediately after joining the new bank.) I think the cost of migrating USAA to the next generation platform was more than $400K per. I heard it was more like several million, and the new liaison simply kicked it upstairs.
MITK actually tried pretty hard to settle early...even replaced the head of sales in an effort to be accommodative. But attempts at settlement were one-sided, so MITK retaliated with charges under the Lanham Act.
My view is that it was better to do the offering before the hearings ramp up this fall. Recall that hearings are scheduled for November. In the meantime, the additional $15mil gives MITK the horsepower to "go the distance" against a much larger company. If USAA thought they could impair MITK's business in any way or that MITK would simply roll over and acquiesce, then it's clear that they overplayed their hand. Because MITK's product is wildly popular with users, and the added cash ensures MITK can afford to pursue its own counter-charges. I think USAA has much more incentive to make a more accommodative settlement now that MITK has additional cash.
"IMO MITK should have settled the lawsuit with USAA, then did the secondary."
You don't post often, but when you do I am always impressed with the wisdom in your messages. Don't know if I agree with this statement though. Would depend upon the terms of the settlement. What do you think a settlement agreeable to both parties would look like at this time?