Potter under pressure as Psion rebels demand IPO for Symbian mobile business

Disgruntled investors say selling out to Nokia will cost them up to £160m
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Psion came under a fresh attack yesterday from disgruntled shareholders who claim David Potter, the technology company's chairman, is robbing them of up to £160m.

The astonishing claim centres on Mr Potter's recent decision to sell Psion's 31.1 per cent stake in Symbian, a mobile phone technology company, to Nokia for £136m.

Psion's rebel shareholders reckon the stake is worth £200m-£300m and they are demanding Mr Potter abandon the Nokia deal in favour of pursuing an alternative exit such as a flotation of Symbian - even if that means taking Nokia to court to make it happen.

The stakes are high. Even a victory for Mr Potter could prove pyrrhic. He will be left with angry rebels, such as Phoenix Asset Management Partners, on his share register. With 13 per cent, Phoenix is a powerful voice and could, in theory, try to force a future sale of Psion in order to realise its goal of extracting the maximum profit from its holding.

What makes the rebels all the more furious is that by selling to Nokia, the Finnish mobile phone giant run by Jorma Ollila will control 63.3 per cent of Symbian's equity, a move they say could damage Symbian's much cherished independence and economic raison d'etre.

The row is set for a showdown on Friday when Mr Potter's plan is put to the vote. The rebels already claim 25 per cent support and growing.

That Symbian, an obscure technology business, can excite such passions reflects its vital importance to the mobile phone world and the view among the Psion rebels that it could become one of the most valuable technology companies on the London stock market.

Symbian's value lies in its operating system for mobile phones. This is the technical guts of a mobile phone and Symbian's was designed specifically to act as an independent industry standard. This is why the company was formed in 1998 by Psion, along with rivals Nokia, Ericsson and Motorola.

The dream was a company developing an open operating system allowing mobile phone users, regardless of which model they own, to be able to communicate with anyone, any way, at any time.

But by selling Psion's stake to Nokia, Mr Potter could be killing that dream, his opponents claim. He is allowing Nokia to turn Symbian, run by David Levin, the chief executive, from a potential profit centre for shareholders into little more than a research and development centre to serve its own selfish interests.

David Sharman, a private Psion shareholder leading a group of rebels, said: "We are saying to Psion, 'Stop being so weak. Get in there with your lawyers'."

An open operating system would allow mobile phone manufacturers such as Nokia or Sony Ericsson access to Symbian's software code, which they could use to design ever more clever mobile phones.

As phones get smarter, the argument goes, more and more phone manufacturers will want to buy Symbian's operating system and use it to their advantage, increasing customer satisfaction and reducing the dreaded churn, where customers ditch one mobile operator for another, often changing handsets in the process.

Not surprisingly Microsoft, which famously dominates operating systems for personal computers, is busy designing its own mobile phone system to rival Symbian's. It was to stop the emergence of a Microsoft in the mobile world that Symbian was formed, but handing control to Nokia could undermine that, argue Mr Potter's critics.

The graphs show Symbian's undoubted success and suggest plenty of profit potential for Symbian, which has its operating system installed in only about 10m of the latest, smartest phones. More than 500m phones were sold last year.

The Symbian-based smart phones represent the future, argue Psion's rebels, so what on earth is Mr Potter up to selling his company's stake in such an exciting business, and why not persuade Nokia and the other shareholders to float it?

"We are not able to force an IPO," said Mr Potter. "I know that some shareholders think we can but they are just wrong. The Symbian shareholders' agreement says that [an IPO] is the preferred route but in the interim things have changed. It is not within our powers to force that if other shareholders don't wish to see it."

The current shareholders are: Nokia (32.2 per cent), Psion (31 per cent), Ericsson (17.5 per cent), Panasonic (7.9 per cent), Samsung (5 per cent), Siemens (4.8 per cent) and Sony Ericsson (1.5 per cent).

"We have to take a judgement whether or not they will want to see an IPO in a reasonable time frame. While we cannot predict the future, we think it unlikely," said Mr Potter.

Since Motorola sold a stake in Symbian last October, to Nokia, the shareholder base has narrowed and Mr Potter believes getting the required unanimous vote in favour of an IPO is nigh on impossible.

One way of limiting Nokia's influence over Symbian would be for the other shareholders to take up their pre-emption rights and share Psion's stake among them. But Mr Potter is as pessimistic about this as the chances of an IPO.

His conclusion is based on the fact that he failed to persuade the other Symbian shareholders to shell out when Motorola sold last year.

"What is the point of taking them up now when they would be paying 40-50 per cent more?" said Mr Potter.

Another key issue is that Nokia is not just the major shareholder in Symbian but also its biggest customer. What it gains as a Symbian shareholder it might well lose as a Symbian customer. There is a fundamental conflict between the interests of Nokia and a purely financial shareholder such as Psion, which is largely why Mr Potter wants to get out now while he still can.

Although Sony Ericsson repeated its view yesterday that Symbian should be clearly seen as independent of any one manufacturer, it has yet to open its cheque book and take up its pre-emption rights. The Motorola sale gave Symbian an implied value of £300m. The Psion sale gives it a value of £435m, which may well prove too rich for the likes of Sony Ericsson.

Nokia, which did not return calls yesterday, has said it would welcome its fellow Symbian shareholders taking up their rights even though this would mean Nokia securing just 46.7 per cent rather than 63 per cent.

David Levin, the chief executive of Symbian, also refused to talk yesterday. But the prospect of becoming, in effect a unit of Nokia's R&D establishment must be horrifying to a man who joined the company with an eye on the much heralded, and potentially lucrative, Symbian IPO.

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