Latest Update On Akamai/Limelight Patent Suit and Potential Limelight Sale

I have been getting a lot of requests for an update on the Akamai and Limelight patent suit, so here are the latest details I have. Last week, April 17th, Akamai filed a motion for permanent injunction against Limelight Networks. It's expected that a ruling on the injunction will come in the next few weeks and there is a pretty good chance that the motion will be granted. If that happens, Limelight is expected to file for and be granted a stay of that motion. Once that happens, it basically means that this suit will go on for at least another year, if not more, unless both parties come to an agreement, which I don't see happening.

While none of this is really news as this outcome has been expected since the jury ruling, I think that once all of the motions relating to the injunction are done, the two companies most interested in purchasing Limelight, AT&T and BT, could once again resume negotiations. In my eyes, it is just a matter of when Limelight will be acquired by a telco and not if. Shortly after the jury ruling, Limelight was offered a buyout for about $8 a share by a telco, which is a pretty good offering in my eyes. (I don't own any shares in Limelight or any other public company) Even at that price, Goldman, which owns just over 35 million shares last I checked, would still walk away with well over $100 million.

Limelight needs the resources of a larger company to really take their business to the next level and to accelerate revenue growth. They can still grow and maintain business as a stand alone company, but the resources of a larger company would give them a better shot in the market for the long run. Limelight is facing at least three patent suits by Akamai, Level 3 and Two-Way Media (more on Two-way later in the week) and at this rate, the lawsuits will take their toll on the company in terms of resources and focus, in addition to cash.

I hope for their sake and for the industry that Goldman isn't going to be too greedy and a deal can be worked out sooner rather than later. There is a huge gap between Akamai, Limelight and the number three CDN in the market in terms of revenue, and I think it's best for the industry to have as many top players as possible.

Comments

[Abe]

You say that shortly after the ruling, llnw was offered 8/share. By which telco and why didn't llnw accept?

[Dan Rayburn]

You'd have to ask LLNW directly on why they didn't take the offer, I can't speak on their behalf. I am not saying which telco offered it. I'm not disclosing that info at this time.

[george]

Why wouldn't akam want to take llnw out? Couldn't akam back llnw into a corner? Thanks

[grinsandfun]

HUM - looking at LLNW's cash burn rate (great to have real info via the stock ticker) - There might be some difficulty after next year keeping the doors open - unless someone purchases them. They are not even on target for profit till 2010 from what I read on another blog (and I believe that is excluding legal fee's).

I hope they survive - but this seems to be a tight market for CDN's & I don't know who would drop the millions needed to keep the "build phase" going.

[Board Call]

Couple of points - Acquisitions, unless there is a proxy vote, are the sole domain of the Board of Directors and the boards usually only include 1 or 2 employees. The boards fiscal and legal responsibility is to the shareholders exclusively. In fact board members can go to jail and/or be sued, quite clearly, if they fail to maintain this obligation.

Therefore is seems unlikely that the LLNW board would have received an $8 per share offer and turned it down since this would represent a 60% premium. Possible but doubtful.

[Abe]

and yet, yahoo seems to be resisting msft's offer.

[Board Call]

Which is why MSFT is preparing a proxy offering which will be given to the shareholders directly. They also can buy enough shares to replace board memebers which is another part of their strategy.

My point was that a board makes the decisions not the company's officers. Jerry Yang probably went to the board (he's a member too) and told them to hold out for more money. A perfectly reasonable thing to do. No need to rush if you can get an extra billion or two.

In LLNW case anyone offering a premimum of 260% (I left off the 2 previously) to a company that's losing money, has no plans of making money for at least 18 months, just lost a significant patent case, and who doesn't have a differentiated product would have their offer accepted in 10 seconds.

I'm guessing that while there may have been discussions there wasn't a formal offer.

[Abe]

i don't think it was 260 percent at the time of the offer; llnw has declined since the ruling steadily.

so, if the story of the offer is true, llnw is at a very low price considering. it is trading not much above cash, although i think about 50 mill has to be subtracted. but it is in no danger of bankruptcy, since they can simply stop operating and distribute the cash.

[Shawn B]

So, based on your research regarding patents, which of the CDNs do you believe to be best protected (other than Akamai and Level 3) and which are at highest risk (regardless of visibility based on market-share)?