Aether Systems completes exit from wireless communications

Stockholders divest final technology division

firm to manage securities

September 16, 2004|By Tricia Bishop | Tricia Bishop,SUN STAFF

Shareholders of Owings Mills-based Aether Systems Inc. voted to divest the company's last technology component in a special meeting yesterday, officially sending the former rising star of wireless communication on to its new venture in mortgage-backed securities.

"The company has been so beaten up," said George M. Ward, a retiree who owns 1,000 shares of Aether stock and attended the meeting in Baltimore. "Two years ago we were hopeful it would come back, but it looks like that's not going to be the case."

Once viewed as a pioneer in wireless communications, Aether rode the technology investment wave of the late 1990s. It acquired numerous companies as its stock soared as high as $345 per share in March 2000. But within a year, business began to falter and hundreds of layoffs began. Like other tech companies that swooned, Aether overspent and overestimated demand for its products.

Since December, the company has systematically sold its three major divisions - transportation, wireless data and mobile government - for a total of $54 million. And this summer, Aether announced plans to leave wireless technology development altogether and instead assemble and manage a portfolio of mortgage-backed securities.

"Now we're moving ahead with [that] strategy," Chief Financial Officer David C. Reymann said after the private meeting of shareholders, during which the sale of the transportation division to an affiliate of Los Angeles-based Platinum Equity, a firm specializing in mergers and acquisitions, was finalized. Though only four investors attended the meeting, about 56 percent of Aether's shareholders voted by proxy, approving the sale by a margin of 99 to 1.

Aether plans to use $75 million of its cash to buy residential mortgage-backed securities from Freddie Mac, Fannie Mae and the Government National Mortgage Association, borrowing against investments to build a portfolio of up to $675 million.

Some investors are wary, however. They bought into a technology company, and the turnaround - as well as Aether's recent record - has been jarring.

"They hope they can make profits [in securities] and use them to offset the losses. ... But let's face it, they've done so poorly over the years as a tech company," said Ward, who attended the meeting with his wife, Ann, a former Sun copy editor. They bought Aether shares about three years ago after the price had dropped considerably to between $5 and $7, long after the runup in tech stocks. For the past three months, Aether's shares have stayed near $3.

Reymann has said the mortgage-backed securities switch is an effort to stop the cash burn and provide investors a return on their money.

"Aether has been and still continues to be about one thing, and that is returning value to our shareholders," he said in an interview this summer.

Institutional investors such as Cadmus Capital Management LLC, which sent a representative to yesterday's meeting, hope the new direction will be profitable. Cadmus owns nearly 1 million Aether shares. Aether has 43.83 million shares outstanding overall.

Nate Walowitz, who worked for Aether two years ago before leaving to start his own Owings Mills-based wireless company, said he is not a large investor but has still suffered losses like others.

"But, you know, that's called investing. The whole tech market has taken such a hit," he said, adding that he's optimistic about the new direction. "I think [Aether's SEC] filings put their case forward to shareholders, and, you know, I just hope the markets cooperate."

Most of Aether's employees will find work with the companies that purchased their divisions. The remaining staff - once 1,400 employees - will be whittled down to fewer than 10 once the transition is complete, which Reymann expects to take several months.

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