In 1947, Bing Crosby, unhappy with the necessity of performing his radio broadcasts live, invested in a small company developing recording technology of sufficient quality to allow him to prerecord his show. It would prove a shrewd investment as not only was Crosby able to record his show ahead of time, but Ampex(AMPX) grew to dominate recording for the broadcast industry, not just for audio but for video as well.
Like many American icons, Ampex faded as new technologies supplanted its core products, and attempts to move in new directions were unsuccessful. By late 2003, Ampex’s stock was below $1 and it was delisted from the American Stock Exchange.
Then came Act II. Ampex began asserting some of the many patents it owned covering various aspects of digital photography and struck several licensing deals including one with Sony that paid it $40 million. The stock zoomed upward, topping $50 in 2005. It has since dropped back to its November 13th close of $14.15, still far above its 2003 lows.
Despite early success with patent licensing, questions linger. A patent responsible for much of the licensing revenue expired in April 2006, and the company lost a key patent case to Kodak. The company has begun to derive revenue from additional patents, and still sells high-end data storage systems, but with its heavy debt load and pension obligations it has been unable to regularly report a profit. Although it did report a profit in its most recent quarter, this was only because of a large one-time gain relating to a deal involving another company once controlled by its CEO.
It’s difficult for me to assess the value here. While the company still has a large array of active patents, they are not easily valued. At least one large shareholder feels there is significant value though. After the close on November 13, ValueVest High Concentration Master Fund filed a 13D disclosing an 8.3% stake in Ampex. In addition, ValueVest disclosed that in February it had hired an intellectual property firm to help it evaluate Ampex’s IP. As a result of the evaluation, ValueVest contacted and met with management several times beginning in May, and offered to acquire additional equity through a strategic investment.
On September 15, ValueVest upped the ante:
the Investment Manager once again confirmed the Master Fund’s interest in acquiring or making a further equity investment in the Issuer. In that letter, the Investment Manager also indicated that it would like to discuss an alternative transaction in which the Master Fund would acquire the Issuer’s Data Systems business and all of its intangible assets other than those patents which the Issuer was currently licensing or litigating and their related patent families. The Investment Manager indicated that it believed that this alternate asset transaction, which would not be subject to any financing contingency or condition, could be implemented relatively quickly and would give the Issuer the opportunity to realize immediate value for its shareholders and to generate further shareholder value through its ongoing patent licensing and litigation efforts.
On September 15, the company responded that the matter would be discussed at Ampex’s next board meeting in early November. ValueVest filed its 13D having still not received a response from the company. During this time, ValueVest has continued to purchase shares, over 130,000 since the beginning of November.
If the company’s patents can be successfully licensed, it stands to bring in a great deal of money. The company owns patents which may cover digital still and digital video cameras, cell phone cameras, DVD recorders, DVRs, and other similar devices. In the shorter term, ValueVest’s agitiation could raise the stock price, but I’d be cautious given the runup over the last week as ValueVest has acquired shares.
Disclosure: I hold no position in AMPX
I notice that PICO is a big winner with CTO. From the 10Q:
On February 7, 2005, we reported on Schedule 13G that Physicians and Citation own a total of 310,000 common shares of Consolidated-Tomoka Land Co. (Amex: CTO), representing approximately 5.5% of CTO. Consolidated-Tomoka owns approximately 12,000 acres of land in and around Daytona Beach, Florida, and a portfolio of income properties in the southeastern United States. The investment was purchased between September 2002 and February 2004 at a cash cost of $6.5 million, or approximately $20.90 per CTO share. At September 30, 2006, the market value and carrying value of the investment was $19.8 million (before taxes).
The patents they hold are involved in HUGE markets, they brought in 120 million on one expiring patent 121 from 13 companies. This Value Fund says that there are over 190 companies infringing on many Ampex patents.