Box lawsuit a positive but Open Text is fully valued, says Abernethy

Box co-founder Aaron Levie. On March 24th, the Los Altos, California-based company publicly filed for a $250 million IPO. Its SEC filing revealed that its losses are accelerating. A victory for Open Text (TSX:OTC) in its lawsuit against Box would add more than two dollars a share in value to the Waterloo-based company, and it’s likely not the last time we’ll see it in the courtroom, says Cantor Fitzgerald Canada analyst Blair Abernethy.

Yesterday, Open Text advised Box that it seeks preliminary and permanent injunctions halting the sale of Box’s products and damages exceeding (U.S.) $268-million in a patent infringement lawsuit against the Los Altos, California-based company. The action was a response to Box’s demand of March 26, 2014 that Open Text provide the amount of damages it was seeking. The patent infringement suit, which covers more than 200 claims across 12 patents, was filed on June 5, 2013.

Abernethy says he sees the lawsuit as an “incremental positive” for Open Text. He expects the most likely scenario will be a resultant royalty or license agreement, under which the award could differ greatly from the more than quarter-billion the company is seeking. He thinks this is likely one of several infringement claims the company is currently engaged in.

Despite the potential windfall from the defenses of its intellectual property assets, Abernethy says he believes Open Text is currently fully valued. In a research update to clients this morning, the Cantor Fitzgerald Canada analyst maintained his “Hold” rating on the stock. He believes a “Fair Value range is (U.S.) $44 to $46. At press time, shares of Open Text on the Nasdaq, where it trades under the symbol “OTEX” were up 1.8% to $47.42. The analyst believes the recent acquisitions of Easylink and GXS were “quite expensive”.

Meanwhile, Box will soon be contending with its own valuation. On March 24th, the company publicly filed for a $250 million IPO. Its SEC filing revealed that the company’s losses were accelerating, it lost $168.6 million in the year ending January 31, 2013. “We do not expect to be profitable for the foreseeable future,” said management in its prospectus.

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