Here is why:
$0.5 for ringtones+$0.5 cash + $1 nokia patents and ZTE suit= $2/share.
This is what VRNG would be worth it they lose the trial now.
If they settle for $493M, subtract 20% legal fees. We have about $400M. Divide this by 120M shares you get $3.2/share. Add this to $2 base price.
You are at $5.2/share.
If we get 0.05% royalties in US revenues ($30B/year) for 4 years. That equals to $600M. Subtract 20% legal fees (not sure if legal fees applies to royalties). Worst case scenario you have $480M. Divide by 120M shares you have $4/share.
Add this $4 to $5.2/share
VRNG will be worth $9.2/share for $493M settlement + 0.05% royalties. I think they should accept this money if offered. They should stop being greedy. They can lose the trial too and they know this.
Ignore all this #$%$ for VRNG going to $20, $30 etc. This is pretty much the best case scenario.
Using your $9.20 example above (don't get me wrong I think you did a good job) but you do not give Vringo's stock any Multiplier? Now add in a minimum Multiplier of lets just say times 4? Google gives a Multiplier of 22. Can you comment as to why you don't give future earnings any Multiplier in your figures?
I don't know if $493M is true or not but there were rumors all around the board this afternoon based on somebody's tweet and longs seem to be very unhappy about it. I am trying to argue that $493M + 0.5% royalties is a good deal.
a) The ringtones were never worth $.50 per share, that would put the company at $60 million instead of the $10 million it was worth before I/P approached them. So that is $.08
b) We raised $.20 per current share count to buy the Nokia patents. And the stock didnt soar by $.80 when it was announced. So lets value that at $.40, aggressively, meaning its worth twice what we paid for it.
c) Cash is $.40 not $.50
d) If they settle for $493 you also have to pay taxes, so take your $3.20 and subtract $1, to get to $2.20.
e) I think you meant to say 0.5%, if you did then $480 million in royalties is taxable and lawyerable, so it becomes $2 per share.
So using your own methodology, corrected to use reality-based figures and recognizing corporate income tax, we get to $5.08. Considering investors discount cash on a balance sheet (because to get at the money they would have to pay a 15% dividend tax: see YHOO), it would likely trade less than $5.08 and I think would probably trade around current levels.
a) you are right. ringtones does not worth $0.5/share. Taking dilution into account it is $0.08/share.
b) you are not right here. Nokia sold these patents to VRNG based on the expectation that they will receive royalties. Those patents may worth much more than the $22M VRNG paid to NOK. I will conservatively value NOK patents + ZTE suit at $1/share.
c) Including cash the base price would be $1.48.
d) Let's say $2.2/share. We are at $3.68.
e) 0.5% royalties = $30 B US revenue x 0.005 x 4 = $600 M minus legal fees $480M minus income tax = $330M. Divide this buy 120M you get $2.75.
So yes my initial estimate was a bit optimistic. Now we are at $6.43/share. I think this is the most conservative estimate. If we take the VHC story as a benchmark we might still see $9/share with this offer. I am still OK with it.
Finally...a voice of reason...which is what i've been trying to say all along...people talking about 25-40 a share are smoking something....8-12 is what I think we end up at..
seriously .05 %???!!!!! 3.5 percent is what has been asked for I believe. Not at all unreasonable either. Google has used these patents and made a vastly hug fortune. To allow them to continue to abuse the owners of these patents by cheating them out of their fair share is obscene.
They need to be held accountable for their actions. They need to pay for what they took and to pay a fair and equitable price. It is not only about money. They should be held accountable for their actions and not given an excuse and a free pass. That is not the law. They do not deserve a discount. They were involved in criminal activity and anyone who says that they should pay little or nothing is simply stupid in my opinion. Why should they get a special deal for being dirty sneaky crooks? If anything they should have to pay a premium and a penalty for their actions.
They have been sneaky and tried antics in pretrial of this case and because of this some of their evidence may not even be admitted. which serves them right. But is goes to how they do business and conduct themselves. It speaks volumes........
I am long VRNG but need to say there is an awful lot wrong with the calculation you asset. You can't really put a multiple on a one time cash payment. That gets a multiple of 1. You also need to discount the future royalties to get a present value for them.