SBJ/August 13-19, 2012/Franchises

Controversies hit business of Grizzlies’ suitor

NBA’s vetting process of prospective buyer Robert Pera will include issue of sales into Iran

Editor's note: This story is updated from the print edition.

Now that Robert Pera has created a billion-dollar public company, the next thing he wants to do is buy a professional basketball team. But Pera’s desire to buy the Memphis Grizzlies puts him and his company, Ubiquiti Networks, in the spotlight during a time when Ubiquiti is mired in controversy and has seen its stock price fall more than 60 percent since early May.

The stock drop has caused people to question whether Pera, 34, can afford the team, as the NBA investigates his personal and business background as well as his financial status.

“I think we’re looking at some short-term irritation, and it’s irrelevant to our long-term goals.”
Ubiquiti Networks’ Robert Pera
Photo by: VICKI THOMPSON / SILICON VALLEY / SAN JOSE BUSINESS JOURNAL
“I think in the long run we’ll be OK,” Pera said about his San Jose company’s struggles on Wall Street. “I think we’re looking at some short-term irritation, and it’s irrelevant to our long-term goals.”

The Grizzlies announced on June 11 that Pera had agreed to purchase the team from current owner Michael Heisley, subject to approval from the NBA board of governors. Pera said he could not discuss his efforts to buy the Grizzlies since the deal is ongoing.

The NBA is going through an extensive vetting process that will look into everything from Pera’s business associates, to his family, to his financial situation. That will include Ubiquiti’s recent controversies, such as an acknowledgement that the company’s products were illegally sold into Iran.

Ubiquiti makes a variety of wireless equipment, such as antenna systems for broadband Internet, and sells primarily into developing and emerging markets. It has recently expanded its product line to include items such as surveillance video systems and systems to control lighting and electricity being used in office buildings.

NBA officials will “look into [the Iran issue], they’ll question it,” said SportsCorp. President Marc Ganis, who advises on team deals. “They don’t want a front-page New York Times story six months from now about how an ‘NBA owner sold products to terrorist organizations,’ by way of example. They’re going to want to understand what [the Iran case is] before they sign off on it.”

The NBA process also will include an evaluation of Pera’s finances. The Grizzlies’ purchase price has been pegged at $350 million, and the team has been losing money.

Pera has a 63 percent stake in Ubiquiti, according to regulatory filings. That stock was worth $2 billion as of May but has dropped to $800 million.

Pera on Ubiquiti stock price, love for hoops

Robert Pera has kept quiet amid the buzz about him buying the Memphis Grizzlies. The 34-year-old CEO of San Jose-based Ubiquiti Networks has shied away from the press, and speculation has been building not only about his NBA bid but also about his company, which has seen its stock price fall more than 60 percent in recent months amid various controversies. Pera agreed to an exclusive interview with the Silicon Valley/San Jose Business Journal’s Diana Samuels, which is affiliated with SportsBusiness Journal.

On the company’s stock price, which has fallen from a high of almost $36 in May to about $14: “There’s two ways to look at Ubiquiti: You can look at the stock price, which has been very volatile, or you can look at the financials and the fundamentals and the history of the company. Ubiquiti’s been profitable every quarter since I founded it in 2005. Last quarter, I believe we were the most profitable hardware company in the public markets. The financial fundamentals are very strong, and there’s a bright future ahead.

The stock volatility has to do with people who are financially motivated and who have bet against the stock, combined with, unfortunately, people spreading false rumors about the company. But I’m fully focused on the long-term growth of the company, so I try to not let these things distract me.”

On his interest in basketball: “When I was growing up, if I could do anything in the world, I wanted to be a professional athlete. For a long time, my dream was always to be in a position to maybe be involved in a NBA team. I played as a kid, all growing up and in high school, and I’ve been a big fan of the NBA, so I have season tickets to the Warriors. I played fantasy league a couple years and I play a few times a week.”

Ubiquiti went public in October at $15 per share, and that price rose to nearly $36 before it started crashing in May. As of Aug. 10, it was trading at just below $9.

Despite the stock drop, the company is profitable: Its third-quarter revenue, announced in May, rose 79 percent, from $51.2 million to $91.7 million. It posted net income for the third quarter of $27.9 million, an increase of 114 percent from the year before.

While Pera appears on paper to have plenty of capital to buy the team, there have been conflicting media reports in that regard. One report said Pera has a net worth of $200 million. Other reports say Pera is looking for partners on the deal.

The Iran issue was one of the first controversies to hit Ubiquiti. The company uses a network of distributors to get its products to customers, and in its filing to go public it disclosed that two of its Middle East distributors had sold products into Iran. The filing said Ubiquiti’s executives originally did not know this was a problem, as the company “lacked sufficient familiarity” with export laws due to “the “inexperience of our management team in these matters.”

Even after putting policies in place to prevent products from being sold into Iran, the company acknowledged its distributors still sold there for a period of time and Ubiquiti “overlooked emails” that showed the sales were happening, according to the Securities and Exchange Commission filings.

The U.S. Office of Export Enforcement issued the company a warning letter and did not impose any financial penalties.

“We already have full disclosure with the government,” Pera said. “They worked with us to put procedures in place [to prevent it from happening again] and issued a warning letter. So in our eyes, it’s a concluded, closed matter.”

In addition to problems with its distributors in Iran, Ubiquiti has faced controversy in China. It has accused an ex-distributor there of counterfeiting its products and won a preliminary injunction against it last month in U.S. federal court.

“In some ways [the controversies] have helped the company,” Pera said. “They’ve exposed our weaknesses. To use a sports analogy, we have a fantastic offense, which is our engineering team that creates tremendous growth and profitability. Now it’s our defense that we’re improving.”

Diana Samuels writes for the Silicon Valley/San Jose Business Journal, an affiliated publication.
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