The Microcap Speculator

Just when it looked like the arbitrage play between Zi Corp. (Nasdaq:ZICA) and Nuance Communications (Nasdaq:NUAN) was turning into a dud, Zi Corp. announced what seems to be a major potential strategic investment. The company claims the investor is a “leading global consumer products corporation” and that the deal would be valued higher than the $.80 offer from Nuance. However, details were sparse and the deal is still in the negotiation phase:

Zi Corporation (Toronto:ZIC.TO - News) (NasdaqCM:ZICA - News) (the “Company” or “Zi”), a leading innovator of mobile discovery and advertising solutions, today announced that it is party to a non-binding letter of intent with a leading global consumer electronics corporation (the “Strategic Partner”). Zi and the Strategic Partner are in advanced stages of negotiations on the terms of a strategic transaction. If consummated, this transaction would result in an equity investment by the Strategic Partner in Zi at a share price that would be at a premium to the proposal by Nuance Communications, Inc. (”Nuance”) dated August 14, 2008 (the “Nuance Proposal”) and, in addition, would result in contracts that would generate significant multi-million dollar annual revenues for Zi. Although there can be no assurance that the transaction will successfully close, Zi has issued this announcement, with the consent of the Strategic Partner, in order to ensure that Zi’s shareholders are aware of the alternative opportunities available to Zi in the face of the recent Nuance Proposal. The Board of Directors of Zi had previously announced that it declined to enter into negotiations with Nuance in respect of its proposal, citing that the Nuance Proposal did not give full value to Zi and its shareholders.

Commenting on the proposed transaction, Milos Djokovic, President and Chief Executive Officer of Zi, stated, “With the work and progress we have made in the past two years, we believe Zi is emerging as the market leader in usability and discovery technologies. We believe our product offerings are winning in the market place, and we are gaining traction and momentum with leading OEMs and carriers that are global in scope and scale. We believe there is significant value in Zi’s product suite that is not reflected in its current share price. This is a cornerstone transaction that would materially and beneficially impact the Company. The equity investment would bolster Zi’s working capital and the multi-million dollar contracts would ensure a healthy revenue flow. Today’s announcement is one of many indications of the value of Zi and the superior alternatives available to the Company when compared to the Nuance Proposal.”

Djokovic continued, “Due to certain confidentiality and exclusivity terms agreed to with the Strategic Partner, which terms predate the Nuance Proposal, we have been, and remain limited in our capacity to provide further disclosure on this proposed transaction. Zi’s board of directors and management remain committed to maximizing shareholder value.”

DISCLOSURE: Long ZICA.