New for today:
1) Spikes in volumes on call options with September 22 expiration. This incluudes over 90,000 in the $3.50 to $4 range. These expire two weeks from tomorrow and the volume is huge. See the options links, you'll see.
2) I suspect that no one is calling for larger settlement amounts possibly due to the judges gag order. He might be cracking the whip regarding rumors. IE, the CEO of VRNG cannot quietly let his hedge fund buddy know this thing is about to explode.
ere's how I see it: If I were Apple, I would want all of Vringo's patents in order to kill Android.
If Apple owned all these patents, they could threaten to sue Google in search, and in turn, go after Google's search customers, if they don't abandon Android.
If you were Google, would you give up Android to protect search? Alternatively, if they were to outbid Apple for Vringo's patents, they could protect Android from such threats. Thus the value of Vringo and it's patents are roughly equal the value of Android and its future.
The value for Apple is in leverage to protect mobile from the most dangerous competitor out there.
Throw in the potential strategic value to Microsoft in these same scenarios. Buy the Vringo patents and threaten to go after Google's customers if they don't convert to Bing. Alternatively, go to court, win, and use the Lang patents to enhance Bing and to drive Google out of search with a 'cease and desist' from using the Vringo patents.
One area of disagreement: Why would Vringo settle for $7/share when a 1% settlement with Google just for past infringement is worth that much? This doesn't even include:
1) Triple damages for willful infringement
2) Potential for higher percentage settlement (1% is conservative)
3) Future revenues (worth $220 million, or about $2/share, again based on a low 1% settlement. If a 5 PE is estimated, we get another $10/share just for this)
4) The other players in the suit?
Furthermore, even if we ignore the strategic ramifications, the future revenue associated with the Nokia patents are probably worth about $5/share.
$7 a share? No way. Figure $7 minimum for a 1% Google settlement for past infringement, another $2.20/share per year for future royalties. If conservative 5 PE, we are already at $17.
Figure 10% premium for the other players and we are at $18.70.
Add $5/share for the value of the Nokia patents future revenue stream and we are at $23.70. Add a conservative 10% for all the strategic ramifications and we are at $26. Add another 10% for anything else that the patent wizards at Vringo can dream up, and we are at $28.60 ROCK BOTTOM.
Add anything else to this - including the possibilities of:
1) Treble damages for willful infringement
2) Something higher than a very conservative 1% Google infringement settlement
3) More than a conservative 5 PE for Vringo
4) Something more than $5/share for the value of Nokia patents
5) Something more than 10% for other stuff the Vringo experts can dream up
6) Something more than 10% for the other players in the lawsuit
7) Google's interest in keeping someone else's lawyers away from thier customers
8) The X factor: Strategic leverage to drive someone out of search, or Android, or both. Or for sometime like Microsoft to strengthen themselves these same markets.
9) Ego / rivalry factor. Does Google want to be seen as a patent thief? Do they want people to think 'don't be evil' really means 'don't be seen as being evil'.
10) Lack of other 'hot areas' for the major players to dive into, and the billions of dollars that MSFT, GOOG and APPL have laying around with nothing to do.
If I were Vringo, $30 is rock bottom to even start a conversation, considering the strategic ramifications and revenue potential. If even one of the factors above is much stronger than the base assumptions, it does not take long to reach $50, $70.
100-1 stock swap? TRY 10-1 and this might be too low. If I were MSFT, I'd go 1 for 2 and this might be too low.
Finally, I would note that the trading in Vringo is very odd. Look at today's Yahoo chart. Who knows what it could be. Stay long, don't be fooled by this odd trading and low estimates.
Sentiment: Strong Buy
Here is the deal. Vrng is not going to be bought out for 7 dollars a share. This idea has been pulled out of thin air with no serious thought. It is complete nonsense. Way too low. The reason why is because of the nokia patents. I'll bet you Nokia has a clause that prevents vrng from seling them off to aapl or goog. If that were not the case then they probably cold have gotten more from them from goog or aapl. The Nokia patents is a huge problem for goog. Perhaps a problem for aapl. Here is the problem. The Nokia patents corner the market on video transmission via 2g, 3g, LTE. They would have to pay to send video across cellular. Goog bought motorola cellular division just so that they could get into wireless. This does not help monetize the mmi acquisition. The only thing that is going to have to happen is a settlement or risk a trial. There is no other option. If vrng looses on the lang patents then you can bet they will go after goog and others over the nokia patents. The only logical thing to do is to settle with a deal of on going royalties. It is in goog best interest to keep this out of court and stay out of court with vrng. Whenever I see forms filled out talking about exercising warrants they are usually very low to were the stock will eventually trade. 4.25-30 was designed because the insiders at vrng plan on exercising when vrng trades way above the threshold. So $50 a share for vrng is a possibility on the horizon if a billion dollar settlement with ongoing royalties is made. It would be well within a 5 to 10 times multiples for vrng. Now the reason why vrng has not exploded yet to the upside. Most people included wall street is clueless about cellular technology. Regarding the search engine lawsuit it is not that important to most of the wall street folks. They just figure vrng is just one more company out there suing goog. This is why it is a great opportunity right now. Buying vrng after it goes over $30+ I don't know. But 3.24 cents a share!!!!! The most to gain and little to loose. Good luck everyone.
All well and good, but how long in the future before these valuations play out? I still don't know how you get $30 as a settlement FLOOR? Maybe Vringo is worth that over time, but I doubt Google pays that much without going to trial. I hope so, but don't think so. Don't forget , settlement is different from a buyout. Still, $10-$15 is nothing to sneeze at.