IDT Following The Straight Path To Spinoff

IDT appears to be making progress on the spin off of its intangible assets as the company recently announced that Straight Path Communications Inc (SPCI) had filed a Form 10 with the SEC . While a distribution date has yet to be announced, IDT shareholders (both Class A & B) are expected to receive 1 share of SPCI for every 5 shares of IDT owned. The new company is expected to trade under the ticker ‘STRP’.

SPCI will consist of two groups:

  1. Straight Path Spectrum (fka IDT Spectrum) which holds a significant number of FCC licenses for commercial fixed wireless spectrum
  2. Straight Path IP Group (fka ICTI) which owns a portfolio of patents primarily related to communications over the Internet and the licensing related to such patents

According to IDT CEO Howard Jonas, the new company “will benefit from a dedicated management team focused exclusively on realizing the upside potential of these two intangible assets.” Aside from focus, it’s a bit unclear why this would be true as according to the Form 10, IDT has already tried and failed to monetize these assets. Perhaps outside of IDT, the company will be able to be more aggressive lawsuit-wise in protecting its IP.

IDT will transfer some cash over to fund the business for a bit as it currently generates <$1m in revenues on a highly concentrated customer base. The new company has deals in place with the law firms it uses which should help control the costs going forward.

As with everything IDT related, it is important to note that Mr. Jonas will have outsized influence on the company given his large holdings. In fact, it looks like Straight Path IP recently awarded him 10% of the unit’s equity as compensation. That award was valued internally at $1.2m, putting a rough value of $12m on that piece. Interestingly, it also looks like the company is facing outstanding lawsuits from former managers disputing their ownership stakes. The results of those suits would obviously have an effect on the company’s value.

It looks like this business will attempt to build upon the success of the ‘patent troll’ industry. Depending on the value of the patents, perhaps there might be some optionality here. As lawsuits can take quite awhile and are subject to appeals, it could take awhile to actually realize that value. Some companies might decide to settle instead of going into a lengthy legal battle though.

It is worth noting that this transaction has had quite a long and troubled history. The company was set to IPO IDT Spectrum back in 2005, but those plans were ultimately scrapped. Additionally, we have previously covered an earlier attempt to spinoff ICTI back in 2011. While it is nice to see the company moving forward with its plans, it remains to be seen whether or not it will actually go through with the move. Maybe putting them together is the trick?

Overall, this is a bit of an odd situation and I am not sure how to value these assets. I can’t say that I even really understand them at all. This looks like a tough one to crack and based on its history, a questionable bet to get finished, but on the flip side, that often signals opportunity.

For our earlier coverage of IDT’s ICTI spin, click here.

Disclosure: Author holds no position in any stock mentioned.