Technicolor said it has agreed to sell its Patent Licensing business to InterDigital in a transaction valued at a total of USD 475 million. This includes USD 150 million upfront, plus 42.5 percent in all future cash receipts from InterDigital licensing activities in Consumer Electronics. Technicolor said that a conservative estimate values these cash flows at around USD 215 million. The companies have also inked a grantback licensing agreement worth USD 108 million. The acquisition is expected to close mid-year after customary closing conditions and when conditions relating to the consent of Technicolor's partners are fulfilled.
As part of the deal, Technicolor and InterDigital will also enter into a perpetual grantback licensing agreement, which will give Technicolor freedom to operate its remaining businesses and benefit from existing and future patents. This will provide Technicolor with the same level of patent protection as today. Technicolor's operating businesses paid around EUR 15 million of royalties to Technicolor's Patent Licensing business in 2017, unchanged from the year before4. Based on these figures, Technicolor estimates the value of this agreement at USD 108 million, included in the value of the transaction.
The sale includes all of Technicolor’s patent portfolio, with the exception of some mobile patents, a small number of patents for new technologies and some patents associated with patent pools. Technicolor said it will continue to get cash from its patent licensing activities in Consumer Electronics. InterDigital will assume Technicolor’s role as the exclusive licensing agent for the joint licensing programne with Sony related to display technology. Technicolor’s team of licensing experts, patent managers and support staff will join InterDigital and work with its existing licensing team to license the expanded patent portfolio.
Technicolor will use cash proceeds from the sale to reduce debt and to then pursue growth opportunities presented by original premium content and the development of immersive content. The company will focus on its core activities, namely Entertainment Services and Connected Home. It will also keep its Research & Innovation organisation, but will engage in funded research with InterDigital.
Under the funded research cooperation agreement, the Technicolor R&I Lab and InterDigital Labs will together develop research programmes in the areas of video coding, connected home and immersive technologies. The idea is to build up the cooperation into a long-term partnership. With this deal, InterDigital will pay Technicolor USD 5 million per year, plus invest another USD 5 million per year into internal R&D projects aligned with the priorities of the research cooperation.
InterDigital said the deal, combining its and Technicolor’s licensing businesses in mobile technology and video technology will create a world-leading R&D-based licensing enterprise. It added that the transaction will "dramatically" expand its tech footprint in mobile devices, and also provide a platform to address new markets in home consumer electronic devices, including set-top boxes, displays and video streaming devices.
The company believes there is substantial unlocked licensing value in the Technicolor portfolio, even though the current contracted revenue of the acquired business from Technicolor is much lower than its historical levels. The company also expects the net impact of the transaction on its core operating expenses to be modest. The deal is therefore expected to drive significant shareholder value, through the deployment of the acquired assets into both current license discussions and new license discussions in additional markets.
Technicolor’s portfolio includes over 21,000 patents and applications across a broad range of technologies, including over 2,500 worldwide video coding patents. This will complement InterDigital’s existing portfolio of 19,000 patent assets in wireless, video, and other technologies.
InterDigital will deploy the acquired assets into its existing mobile industry licensing efforts, and extend its licensing programme to new activities in the consumer electronics field.
