Setting the Stage to Be Bought Out

By Tom Taulli

InterTrust has always been a visionary company. Founded in 1990, the company was thinking about ways of protecting digital content. Of course, with the emergence of the Net, the companyís ideas were much sought after and the company raised substantial amounts of money from its IPO.

But like many visionary companies, InterTrust appeared to be ahead of its time ñ and this is deadly for investors. Essentially, the company was generating minimal revenues but still had a substantial burn rate.

As a result, the company restructured its operations early this year and focused on being an intellectual property company, similar to Qualcomm. That is, InterTrust would license its technology to mega companies. Its first big customer was Sony, which paid a whopping $30 million upfront licensing fee.

The Problem...

Yet, there was a major problem: Microsoft. Yes, the giant from Redmond seems to be a problem for nearly every tech company. In the case of InterTrust, it was mired in a patent infringement suit against Microsoft. Perhaps, Microsoft was guilty of violating the patents. But does this really matter? After all, Microsoft has an army of lawyers and seemingly unlimited funds. InterTrust, on the other hand, is small fry, even though it has about $125 million in the bank.

What is a company to do? Well, why not sell to a mega company that has the resources to beat Microsoft. But who? Well, how about your biggest supporter? Why not talk to Sony.

The Result...

That is what InterTrust did and it was a good move. This week, InterTrust agreed to sell out to a group that includes Sony, Royal Philips and other investors. It was an all-cash deal for about $453 million or about $4.25 per share.

Maybe InterTrust could have sold for a higher price. Then again, Microsoft would surely find ways to drain InterTrust. Besides, by announcing the huge licensing deal with Sony, InterTrust was able to boost the stock price, as well as stoke interest in Sony to eventually be a buyer.

Of course, the deal makes a lot of sense for Sony. The company has a compelling need to protect its intellectual property. Also, it has incredible distribution in the media business ñ something that Microsoft lacks.

MergerPlace is pleased to have the esteemed Mr. Tom Taulli as the managing editor of our MergerPlace M & A Advisor™ E-zine.

Tom Taulli is an expert in the M&A process. He is the author of the critically acclaimed The Complete M&A Handbook (Random House) as well as six other books written for publishers such as Bloomberg and McGraw-Hill. Tom also teaches M&A at the USC School of Business.

Tom has been quoted extensively in the press, including the Wall Street Journal, USA Today, Barron's, and The Los Angeles Times, and has provided commentary on CNBC, CNN, and Bloomberg TV, as well as appeared on a variety of top radio stations across the country.

Tom's books are available for purchase in our bookstore.

BACK to Tom Taulli archive