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Another Patent Portfolio Acquisition – Positive for WIN Valuation

Yesterday it was announced that AOL is selling 800 patents to Microsoft in a US$1.1B deal. AOL shares increased 45%+ yesterday on the back of the news, while other patent portfolio plays including IDCC (Interdigital) were up ~4%.

Overall the announcement further illustrates the value and demand for patents. Action within the space over the last year includes Google’s purchase of Motorola Mobility for $12.5B (17,000 patents), a consortium including Microsoft, Apple and RIM purchasing 6,000+ Nortel patents for $4.5B, Facebook acquiring 750 patents from IBM and Kodak valuing 1,100 digital patents at $2.6B.

Valuation wise, WIN remains compelling in comparison to its peers, trading at a 7.7x P/E multiple or half of what peers are currently sitting at. Netting out a cash position of $187M the company is trading at 5.4x our 2012 EPS estimate.

WiLAN continues to focus on growing its patent portfolio where they feel they can get the highest return and we can expect purchases within the Wi-fi, Internet and cloud computing space going forward. The company acquired 1,400 DTV patents late last year and we expect the company to launch new litigations in short order.

Additionally on the last conference call management stated that the company will not be providing quarterly guidance in order to fetch increasing larger settlements, all positive for the company. We reiterate our Strong Buy and $10.00 per share target price.