In The Race For Patents, InterDigital Could Keep Pace

| About: InterDigital, Inc. (IDCC)

Shares of Pennsylvania based InterDigital (NASDAQ:IDCC) have been on a rocky ride since the company hired Evercore Partners and Barclays Capital to explore a possible sale of the company in mid July. The stock raced up from the low $40s into the low $80s, but is now back into the mid $60s. Why is there so much interest in this company?

Well, as Bloomberg describes, this company has close to 9,000 patents on various technology components used in the iPhone, BlackBerry, and many other popular devices. The company also invented some of the technology used in current high-speed mobile phone networks. These patents would be invaluable to a wide variety of tech players.

Patents have indeed seemed invaluable lately. Last month, Google (NASDAQ:GOOG) offered $12.5 billion for Motorola Mobility (NYSE:MMI) to gain patents and more access to hardware. In June, a consortium led by Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) bought a pool of Nortel Network's patents for $4.5 billion. There has been a race to snap up these patents, and InterDigital could be the next one to go.

The company has stated that it believes its patent pool is deeper and better than those of Nortel, and if that's the case, you would expect the purchase price to be $5 billion or greater. This would be a hefty premium from the $2.9 billion that the company is trading at currently. Google did pay a 60% premium for Motorola Mobility. However, you must remember that InterDigital has run up 50% since the announcement of a possible sale. This could get factored in to the purchase price.

So who is the likely suitor? Well, we expect that Google dropped out of the race when it got Motorola Mobility. You might also think that Microsoft and Apple (AAPL) wouldn't be interested after their acquisition, but I wouldn't put it past them. The current leader of the pack is Intel, followed by phone makers Samsung, HTC, and Ericsson (NASDAQ:ERIC). Who knows, maybe even Sprint (NYSE:S) gets involved, although I don't think they are in the best position right now to do so.

According to the Bloomberg article, bids are due by the end of next week, so a deal could be done by the end of the month, although it probably will take a little longer than that. That is, if it happens. InterDigital is a growing tech company, and it did post almost $400 million in revenues and $153 million in net income in 2010. I'm sure that most shareholders would like a quick profit here and to get a deal done, but management must do what's best for the long term. They might just decide to wait a year or two and see how things are then.

This is not a failing company whose pieces are being auctioned off at some bankruptcy sale. This is a growing company with a strong core of assets that are very desirable to many others out there. There has been a large amount of hype over this firm lately and investors should be cautious. While I think there is a better chance than not of a deal getting done, always remember not to invest based on the possibility of a deal getting done. Remember, this stock dropped 14% the day the MMI deal was announced, and was down almost 23% at one point this day. While it is certain that any deal should fetch a nice premium, this stock could lose 30% or more overnight if one doesn't happen.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.