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VirnetX Holding Corp Message Board

  • zeleration zeleration Jan 14, 2013 5:21 PM Flag

    Nubes be cautious of the M&A chatter.

    I am long.

    A lot of posts on here that VHC will be acquired "any minute now" by a much larger company like Cisco etc and VHC management would encourage that - I disagree. VHC management and the direction for VHC is clear - they see themselves as the next Qualcomm and intend to get there through FRAND licensing. They are literally telling you that in public disclosure.

    So the same model as Qualcomm and history finds a way to repeat itself ... Remember Qualcomm had to take a few people to court and win before people started licensing and taking them seriously too. This is the very nature of large tech vs small tech. Don't buy it (or license it) if you don't have too!

    So while all longs (myself included) would welcome a buyout at some obscene multiple :-) it is much more likely that Apple will settle soon for a reasonable amount, Cisco will begin trial (see how it goes for a bit) and then hopefully settle too, the rest will unfold quickly. VHC, by next summer (with now a truly massive legal war chest of wins) will launch a major marketing effort to promote FRAND licensing so the technology and industry will adopt it in order to make communications both better and safer (which is the point and reason for the invention).

    I am long VHC primarily because an Internet Standard "work around" technology does not exist. I ask myself why I created a position in VHC the first place it goes like this ...

    Has the VHC product changed? No.
    Has something fundamental in the industry changed? No.
    Has a new competitor popped up? No.
    Has the demand for Internet based security diminished? No.
    Is there a "good enough" competitor? No.
    Has the team changed significantly? No.
    Has the companies strategy changed significantly? No.
    Do I see warning signs? No.
    Is company burning through too much $$$. No. Especially for results in court agaisnt the best in the business.
    Has the judicial system or USPTO positions changed? No and even if they do Congress is slow to move and telegraphs it's moves.
    Is the stock up more than 20% since you bought it? Yes
    Has it hit your ROR targets? No.
    Should I sell this stock and book profits? Maybe if I was a trader but I am investing not trading - I have low 20's cost basis.

    IMHO Targets: PPS going to the 50's given the Apple result and 70's by the time Cisco settle and there are a lot of people who think the appeals process itself is enough to keep this one from going much higher at all - that does not make sense, appelas are just delays, we have more than enough money for the appeals and it is much more difficult to get and win appeal. Time will tell on VHC but for those of us who invested early in Qualcomm we were richly rewarded.

    If you are short, may God bless you, you make the market work but we need you around so cover quickly when it moves. Problem is VHC could explode just based on rumor.

    Here is how the conversation will go at the most senior levels after VHC have a few more victories (PS I have been in the room when conversions like these happen, they are priceless.).

    CEO, Board (BOD), Internal Legal and Outside Counsel (OC)...

    LEGAL: "Outside Counsel advises going the distance with VHC ... all the way! They are confident we will win this in court, they say we have smarter lawyers, a better case ... lets get lawyering, we will save the company millions!!!"
    BOD: "But they easily beat Microsoft, Apple and Cisco, have 100's of millions in damages and multiple patents?"
    Outside Counsel: "But those companies should never had settled, they should have appealed, we would have won becuase our startgey is better, those patents are a joke!"
    BOD to CEO: Can't we license VHC technology at FRAND for the same cost as our competitors?
    CEO: Yes.
    OC: It's the principle, it sends the wrong message, their technology should not have been granted patent protection, it's unfair to all large technology companies, sets terrible precedence.
    CEO to OC: Will you work for cost if we loose the case and help defer the damages?
    OC: No.
    CEO to LEGAL: Get a deal done on FRAND and see if we can save a few bucks versus competitor A, B and C.
    BOD to CEO: You need to replace OC.

    Good luck to all.

    Sentiment: Buy

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    • perfect post- worth reading 5 times

      Sentiment: Strong Buy

    • zeleration, it is good to see some investors posting. I believe it is in the interest of VirnetX (KL) to collect royalties and pay special dividends. Although if there is an offer north of 5 billion IMHO KL will take it. I am glad to be an investor.

      Sentiment: Strong Buy

    • Zeleration, don't know who you are, but man, do you make sense. Thanks

      Sentiment: Strong Buy

    • Really worthless post. This company has at least 4 major companies biting at it's heals and you're telling people it isn't happening? Shame on you for misleading people. This company will get an offer within the next 2-3 days to circumvent the AAPL dealings. Use your head. Stop being one of the sheep who keeps saying another 6 months, another 6 months......we're all tired of hearing that. There are deals on the table. Count on it and quit trying to mislead people.....

      • 3 Replies to hogan516
      • Have you seen any signs the patents wont hold up - if not COVER

        Sentiment: Strong Buy

      • Hogan I am not trying to mislead anyone - it's just my opinion. However I have been in the technology business for a long time and thats the more likely pattern. VHC will stick to their business plan (FRAND), get some partnerships going with large clients that drives the industry to embrace the technology thus creating organic growth. This is not a bad plan for VHC, after you win a few in court in becomes easier to execute hence my Qualcomm example Although Willie correctly pointed out that we would be a "mini" Qualcomm. Actually more like a mini mini Qualcomm with a little bit of ARM thrown in. :-)

        As for the deals you mention in your post, I am all ears... Post your hypothetical candidates proposed deals and give us some data to support your valuation models. I would be pleasantly surprised if you are right, but do us the same courtesy and do not try to mislead new investors with some crazy model that makes no sense. I am long on VHC.

        Sentiment: Buy

      • Hogan, thank you for identifying your post as "Really Worthless Post", I wish more people would be as courteous.

    • Good post zeleration. I have long said Virnetx is the next mini Qualcom and I say mini because Virnetx doesnt not have products that Qualcom has. Could they buy a chip company or other start up and get involved in manufacturing something,you bet. I have also stated that I am a little selfish and do not want to see Virnetx sell out and would rather they develop their business plan and Kendall's vision. Interesting you are thinking Cisco goes to trial. Thats a dangerous game of chicken they are playing. When Virnetx has them over a barrel then they will try and make a deal. Problem is then McKool will be able to taste that treble damage award. Your price targets are very reasonable but the one caveat I see is the never ending short interest trying to keep the lid on VHC. I am not in the camp that many of the shorts are un hedged. They have had to long a time to cover their positions with calls or even selling puts over and over. SAC capital was up 12 % last year ( entire fund )I believe. Usually a big squeeze comes when the unknown hits . With Vhc the shorts probably have known for a year that their goose is cooked. A buyout for sure could cause a squeeze but I dont think we see a buyout for at least a long time. An unexcepted Google offer would hurt the shorts for sure.Shorts have been playing with vhc for so long they no doubt are and have been doing all kinds of black hat and rabbit tricks with the stock and options. Many of the shorts could get burned but not all. Its JMO .

      • 1 Reply to willie7
      • Willie, good points, especially on VHC size. We are more like mini mini Qualcomm with a tiny dash of ARM tossed in. IMO mrisk/reward favors the longs as AAPL is not fully priced in. Difficult to make the short case on VHC but a ton of people are short. If we do see a real squeeze I think it will be very bloody given volume etc and the belief CSCO may not go the distance if AAPL settle.

        Sentiment: Buy

3.15-0.12(-3.67%)Sep 23 4:01 PMEDT