IPH – just a dog in the manger?

C’mon IPH!  What’s your game?  The suspense is killing me…

It’s like a bad horror film.  The happy couple (Xenith IP and QANTM IP) are happily courting, telling each other how equal they are and looking at South-East Asian travel brochures, when, out of nowhere! the monster (IPH) swoops in and snatches 19.9% of Xenith IP.  A bit of a laboured analogy but what the heck!

What happens next?  That’s what I am saying – nobody knows.  There’s no clear strategy.  Why can’t IPH just get that extra 0.1% and go for the take-over of Xenith?  Why did they make indicative, conditional non-binding offers to QANTM last year (see this post)and go for Xenith  this year?  Spoilt for choice?  A bit schizophrenic?

Or is it something else?

As I was saying in this post,  the QANTM/XIP merger is a potential threat to IPH.  Let me revisit my statements at that time:

In terms of IPH’s business model – providing patent services across the Asia-Pacific region (and potentially other regions)  – QANTM is a potential threat.  Not a big threat, mind, as it does not presently have the scale or reach of IPH in the region but a potential threat.  It is at least physically present  in the region and running patent attorney businesses there.

Unlike every other firm, with the exception of IPH (and Xenith) , QANTM also has the benefit of being a listed entity and therefore able to access capital to expand into Asia.

Merging with XIP increases that threat as it provides better scale and also clients that file into Asia – for example, XIP through Griffith Hack acts for Colgate Palmolive who use them as a regional hub for all Asian filings.  If the merged entity capture the revenue from these filings in their own Asian subsidiaries rather than paying agents then that is a very useful resultant synergy for the two companies.

If IPH acquire QANTM, that threat goes away before it really has a chance to get going.  In addition, if IPH acquire QANTM they obtain a very profitable business that fits easily into their model.  It might even be at a price that is relatively attractive given expectations of QANTM’s future revenues and profitability.

There would be regulatory implications as the combination of IPH and QIP would have a large share of the patent market in Australia – larger than the QANTM/Xenith entity.  However, this might be a risk that IPH is prepared to take   If the merged entity results in competition law issues, perhaps there are ways to deal with that including divesting one or more parts of the business.

But even better than that, IPH does not need to acquire QANTM to obtain a useful result.  If they can muddy the waters for the QANTM/Xenith merger then that provides its own benefits as QANTM/Xenith shareholders and board members are left weighing up a number of competing offers – a very distracting process – rather than having clear air to progress the business plan of the merged entity.

That is to say, perhaps IPH aren’t particularly concerned which of QIP and XIP they merge with, or even if they merge with either of them at all, provided that QIP/XIP merger does not go ahead.  It’s better to be the biggest player by a wide margin with two minor rivals then having an entity of (approximately) equal size to worry about.

Is that the strategy?  Stop the merger and see what you can do with the fall-out?  Maybe.  If I knew for certain I probably wouldn’t be sitting here blogging about it.  But from my perspective it is a viable strategy on IPH’s part.




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