Description

We believe this is the best time to purchase UPIP in the two years since we've been watching this stock.  With a significantly de-risked story, UPIP is worth at least $3 per share, representing >120% upside from here.

The unitiated should read specialk's report from December 2013, and the accompanying 37 messages, with very helpful contributions from otto and WKB.

This report will focus on incremental new information to convince you that now is the time to purchase UPIP and wait patiently for the company to be sold or collect settlements for multiples of its current value within the next couple of years.  If you need background on the company, please read the prior report.  In short, it's a patent licensing company in partnership with Ericsson enforcing patents related to the mobile web.

What's changed?

When specialk wrote his report, UPIP was trading at $1.33, it had 145 MM in MCap and 87 MM in EV.  Today, it is trading at $1.36, with 152 MM in MCap and 67 MM in EV.

In the meantime, the company has (1) signed an indicative deal with Lenovo, (2) seen significant insider purchases during a narrow window, and (3) renegotiated its deal with Ericsson.

(1) Lenovo deal set a valuable precedent 

The company announced a $100 MM deal including an upfront 5 year licensing payment and a sale of 142 patents.  The stock traded up almost 70% over the next week, and MCap reached 250 MM and EV reached 140 MM.  This transaction validated the company's endeavours to license the patents and has made it significantly more likely it will succeed in winning settlements with other parties.

(2) Insiders purchased stock at higher prices

Following the Lenovo deal, three directors bought stock in the open market immediately afterwards:

Mike Mulica, former CEO, bot 100k @ $2.00
Dan Mendez, EVP & General Manager IP, bot 50k @ $2.00
Phil Vachon, Chairman, bot 25k @ $1.97

There have been no insider transaction since March.

(3) UPIP renegotiated their deal with Ericsson

On September 17th, the company amended its agreement with Ericsson. Previously, UPIP needed to pay Ericsson $1 BN if a change of control was triggered prior to February 13, 2016.  The amendment extended this date to February 13, 2017 and increased the payment to $2 BN. We believe this was a concession by both parties that unlocking this value would take slightly longer than initially expected, but that the potential values have increased in light of Lenovo.  Additionally, UPIP is now allowed to engage in licensing efforts for non-wireless patents, potentially opening up a path to monetizing its $1.6 BN in NOLs.  Additionally, Ericsson gave UPIP an option to reduce its revenue share agreement by 1pp per $5 MM; a full exercise would take the revenue share from 30% to 50% for $100 MM (for amounts in excess of $500 MM). 

Legal Status

We engaged legal consultants who provided a positive view of UPIP's current legal position.  Unfortunately we cannot share their conclusions, but we would encourage serious investors to consider doing the same.  The company also provides updates on its blog at http://www.unwiredplanet.com/blog 

Conclusion

Valuation is more art than science here, and we arrive at a minimum of $3 by triangulating between: (1) comparing UPIP to other publicly traded trolls; (2) comping against prior patent transactions; (3) reverse engineering implied value from the Ericsson deal; and (4) a pretty bogus DCF with expected licensing proceeds.  Please be sure to note the Ericsson sharing agreement and McKool's unique legal structure when you do your valuation.

With over three years of liquidity, UPIP has time to push through these trials and extract settlements from multiple large infringing companies.  The recent renegotiation with Ericsson has given the company flexibility to utilize its significant $1.5 BN NOL balance, and the heavy trial calendar for 2015 (seven active cases) means we should get catalysts very soon.  We expect positive results will remind investors of the value here, and expect to see the stock increase >120% over the next couple of years.

Catalyst

Favorable trial verdicts in 2015.