23rdDec 2003. Following a bidding war with high profile shareholders in Lake Technology, US audio giant Dolby Laboratories has finally secured the company with an increased offer of 16 cents a share.
Dolby lodged a bid of 13 cents a share in September 2003. Lake shareholders, including former prime minister Paul Keating, Strathfield Group founder Andrew Kelly, and advertising chief John Singleton criticised what they claim is a low-ball bid by Dolby. The 13 cent offer price represented a multiple of over 35 times Lake’s projected earnings before interest, tax, depreciation, and amortisation for the year ending 30 June 2004.
Mr Keating launched a scathing attack on Lake’s management in September after Dolby announced its bid, blaming them for the company’s lack lustre performance. “The Lake board runs the risk of doing another MIM; giving the company away to Americans who have been influenced by Lake’s exceptionally poor management,” he said. The board of Lake had recommended the Dolby bid.
A Grant Samuel’s report had played down the prospects of a rival bid to Dolby, stating that the list of potential buyers was limited, and any rival would have to contend with Dolby’s 20 per cent stake. Lake also relied on Dolby for one-third of its revenue last year.
The relationship between Dolby and Lake began in October 1998, when Dolby entered into a commercialisation agreement with Lake under which Dolby agreed to license certain Lake technology. In the financial year ended 30 June 2003, license revenue from Dolby contributed approximately 33% of Lake’s revenues.
On 11th December 2001 Dolby acquired 6,468,724 shares in Lake (or approximately 5.8% of the company). On the same day, pursuant to The Convertible Note Issuance Agreement, Dolby was issued with four (4) Convertible Promissory Notes (“Notes”) with a face value of US$500,000 each, or a total amount advanced of US$2,000,000. On 31 March 2003, Dolby converted one (1) of the Notes and was issued with 4,134,133 Lake shares, bringing their shareholding to approximately 8.4%.
On 16 September 2003 Lake agreed to make a placement to Dolby whereby Dolby was issued with 9,910,000 Lake shares at A$0.11, to bring Dolby’s stake in Lake to approximately 14.99%.
In September 2003 Dolby entered into a pre-bid acceptance agreement with a founder shareholder of Lake, being Mr. David McGrath (and associated companies), whereby he has irrevocably undertaken to accept Dolby’s offer in respect of 4.9% of the shares of Lake, which will take Dolby’s interest in Lake to 19.9%.
Further, Mr. David McGrath (and associated companies) had indicated his intention to accept the bid with respect to his remaining shareholding in Lake (which constitutes approximately 9% of Lake’s shares) within two weeks after the bid is made, in the absence of a higher offer.
About Lake Technology Limited
Lake Technology Limited (ASX:LAK) is the developer and marketer of innovative digital signal processing systems and algorithms used worldwide in audio applications that include live concert sound, consumer entertainment products, personal computers, in-flight entertainment, acoustic research, and virtual reality installations. The company’s IP portfolio includes 11 US patents and patents granted in other key territories, in addition to a number of patents pending. Based in Sydney, Australia, the company’s shares were listed on the Australian Stock Exchange in 1999. For more information about Lake Technology and its patented digital audio technologies, please visit www.lake.com and email us at email@example.com.
In the late 1980s, the CSIRO Division of Radiophysics and Austek Microsystems co-developed digital signal processing technology for the development of new chips. Two engineers, Brian Conolly and David McGrath, saw a business opportunity in the technology in audio applications, and founded Lake DSP in 1991. (The company was renamed Lake Technology Limited when it later listed on the Australian Stock Exchange.)
Lake Technology’s first customer was Bose, the well-known US audio company, which contracted Lake Technology to explore the development of digital audio signal processing products. The products developed under the contract were acoustic research tools which are still marketed to acoustic laboratories in Japan, the USA and Europe.
With the support of a Commonwealth industry R&D grant, Lake Technology developed the Huron Simulation tools, a package of software-based signal processing systems over the period 1993-6. These tools are suited to a range of virtual reality applications, such as virtual teleconferencing, interactive simulation of the acoustic qualities of buildings at the design stage, multi-player games and location-based entertainment for amenities such as theme parks.
The simplicity of the technology means that it can be incorporated in several consumer products. It is also easily implemented in a wide range of digital processing chips, thus opening the door to its use in most situations where headphones are used and leading to the development of the process known as Dolby Headphone.
Dolby Headphone allows people to listen to computer models of room acoustics and experience the sound as if they were present in the space being simulated. In 1997, Lake Technology began to market the headphone surround sound technology. In 1998, Dolby agreed to commercialise the technology as “Dolby Headphone”. Singapore Airlines launched the technology in April 1999 for its in-flight entertainment. Lake Technology has subsequently licensed the technology to Qantas, Lufthansa and Cathay Pacific.In the eleven years since inception, Lake Technology has grown to a company employing more than 25 staff and listed on the Australian Stock Exchange in December 1999.
In December 2001, Dolby Laboratories acquired a strategic shareholding in the company, the first such investment by this world-leading company. This is expected to give rise to further licencing opportunities in the future and validates the quality of Lake’s audio technology.