John Emanoilidis comments on Wi-Lan's innovative financing of its attempted acquisition of Mosaid Technologies in Financial Post

An Innovative Way to Raise Takeover Cash

January 27, 2012

In a sense, the fact that Wi-Lan Inc. ultimately failed in its quest to acquire Mosaid Technologies Inc. last year doesn't really matter.

As soon as the Ottawa-based patent licensing firm launched a $480 million hostile takeover bid for its crosstown rival in mid-August 2011, the company had already made history. To afford paying $38 per share for Mosaid in cash, Wi-Lan had to raise $230-million in extendible debentures to supplement the cash it already had on hand and at the ready.

The more innovative part was the extendible aspect of the financing that would allow Wi-Lan to pay back the money on a short-term basis if it was for some reason unable to complete the Mosaid deal. But if the union were consummated, the debentures would automatically move into a five year repayment timeline with a 6% annual interest rate.

The short-term repayment option proved quite useful, as Mosaid eventually agreed to be acquired by Sterling Partners, a private equity firm in the United States, for $46 per share or $590-million in cash last October. On Jan. 19, Wi-Lan said it would spend $233.9-million to repay the debentures by their initial maturity date of Jan. 31, implying the company avoided making a full 6% interest payment.

So Wi-Lan managed to save millions of dollars in potential interest, but the strategy was not without risk. Because it was a bought deal, the underwriters were granted certain "termination rights," explained John Emanoilidis, who worked on the transaction team.

"The most significant [termination right] is a disaster out, so if there was some kind of disaster in the markets, for example, that could theoretically not make the financing available," John said.

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