From there to here

Aether sells last wireless unit in bid to reinvent itself

Deconstructing Aether

January 1996: Aether launched as Aeros LLC.

August 1996: Name changes to Aether Technologies International LLC.

September 1999: Name changes to Aether Systems LLC.

September 1999 - December 2002: Aether acquires 11 businesses for more than $1.6 billion.

October 1999: Aether raises $101.1 million in an initial public offering of stock. Name changes to Aether Systems Inc.

March 2000:Aether raises $1.06 billion in a secondary stock offering.

August 2000: The company forms a new division, Aether Capital, to invest in other wireless technology companies. Over time, Aether invests $196.8 million in 24 businesses. Its remaining six investments are worth $2.3 million Dec. 31, 2003.

December 2000: Aether employs 1,375 people.

2001: Aether closes 12 facilities and cuts staff by 480.

2002: Aether closes or consolidates four facilities and cuts staff by 353. Its focus narrows to four markets: enterprise solutions, transportation and logistics, mobile government and small business.

January 2004: Aether begins selling its remaining three business units. The Enterprise Mobility Solutions Division is sold to Annapolis, Md.-based TeleCommunications Systems Inc. for $19 million.

February: Aether hires Friedman, Billings, Ramsey & Co. Inc. to advise on what direction the company should take.

June: Aether announces it will begin building a portfolio of mortgage-backed securities.

July: Aether announces its Transportation Division will be sold to Los Angeles-based Platinum Equity LLC for $25 million.

August: Aether announces its Mobile Government Division will be sold to Eagan, Minn.-based BIO-key International Inc. for $10 million. The sale marks the end of the company's run as a wireless technology concern.

Aether Systems Inc., the once high-flying provider of wireless technologies to government and industry, has nearly completed a bold transformation that will see the company leave the wireless market and become a securities firm.

Aether officials this month announced that the last of the company's business units, the Mobile Government Division, will be sold to BIO-key International Inc., an Eagan, Minn., developer of biometric identification and wireless public safety technologies. BIO-key International will pay $10 million in cash for the division, which brings in about $19 million a year.

The sales of Aether's business units will be finished later this year, and company officials already have begun building a portfolio of mortgage-backed securities, said Dave Reymann, Aether's chief financial officer.

Aether has invested $75 million to begin the portfolio, according to statements by the Owings Mills, Md., company. Friedman, Billings, Ramsey Group Inc., an Arlington, Va., investment banking firm and Aether's adviser, will run the portfolio for at least the first year, Reymann said.

It's an unusual end for Aether, which raised $1.2 billion in stock offerings in 1999 and 2000. Market analysts said it's rare for operating companies to turn themselves into investment vehicles.

"They are basically giving up on their business plan," said Joe Cecin, managing director of Windsor Group LLC, a Reston, Va., investment banking firm that serves companies in the aerospace and defense, government services and communications markets. "You don't see it too frequently, except at the end of a long, painful road. This is the end of the story for Aether as we knew it."

In Aether's 2003 annual report, company Chairman and Chief Executive Officer David Oros told shareholders that the company could not continue on its current path. He said company officials were considering building the business through acquisitions, selling one or more business units or selling all of the company's business units and implementing "a very different operating strategy."

In the end, Aether chose the last option.

"We were competing in an industry that's somewhat stagnated, and we wanted to get to the point where we could utilize our [net operating losses] and get money back to our shareholders, but it was going to take too long," Reymann said. "We concluded that the best way to do that was to exit the wireless communications business and focus on mortgage-backed securities."

Aether's new strategy is to generate taxable income through the securities portfolio that will offset its $700 million in net operating losses, Reymann said.

Unlike other companies that have pursued such a strategy, Aether will not give up its C corporation status to become a real-estate investment trust, Reymann said. REITs have to distribute almost all their earnings each year as dividends to shareholders. Aether will instead reinvest its money in securities, using the earnings to offset its net operating losses, he said.

After Aether went public, its executives went on a buying spree, acquiring 11 companies and at one point employing about 1,400 people. The company stock hit a high of $345 a share in March 2000. But the company has never turned a profit, and its stock now sells for less than $3 a share.

The company simply burned through its cash, said Scott Sutherland, an analyst at Wedbush Morgan Securities Inc. in Los Angeles who stopped following Aether last year.

"They could never get their cost structure in line with their revenue opportunity," said Sutherland, who noted that few companies have been profitable in Aether's line of business -- using wireless technology to deliver solutions to enterprises such as mobile fleets.

After the tech bubble burst in 2000, Aether executives began selling off pieces of the company, even as they continued to win contracts. In 2002, for example, Aether won a $6.5 million contract to provide 1,600 Pennsylvania State Police cars with software that allows officers to file incident reports and access databases that track vehicle registration and other information. In 2003, the company won a similar contract for 650 police cars used by officers in Hamilton County, Ohio.

After the bubble burst, "big companies were downsizing, and wireless spending wasn't a priority anymore," Reymann said. "Being in the number of businesses we were in was too expensive, so we focused on three areas, and that still proved to be a challenge."

Before the announced sale of its Mobile Government Division, Aether said in July that its Transportation Division would be sold for $25 million in cash to an affiliate of Platinum Equity LLC, a Los Angeles company that buys and manages undervalued and undermanaged companies. Aether had finished the sale of its Enterprise Mobility Solutions Division in January to TeleCommunications Systems Inc. of Annapolis, Md., for $19 million.

Reymann said all Aether employees who went to TeleCommunications Systems with the sale of the Enterprise Mobility Solutions Division are still employed, and that all Aether employees with the Transportation and Mobile Government divisions would be offered jobs with the new owners.

Staff Writer Gail Repsher Emery can be reached at gemery@postnewsweektech.com.

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