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Wireless Solution Illustrates Success of Unorthodox Strategies

By Terence O'Hara
Washington Post Staff Writer
Monday, August 23, 2004; Page E09

Wall Street helped Aether Systems Inc. become a wunderkind of the wireless data industry in 1999. But when its strategy to build a wireless empire collapsed, it turned to the small Arlington investment bank of Friedman, Billings, Ramsey Group Inc. for a solution.

FBR's answer was to turn Aether into a mortgage-backed securities fund that FBR largely runs, a strange ending to Aether's journey through the intensely competitive wireless world, and one that highlights FBR's unusual strategies.

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David S. Oros, a mathematician who had spent most of his career developing software for military radars, founded Aether in 1996 to commercialize his ideas about wireless software. He felt that wireless access to data, using cell phones or other devices, would become ubiquitous and profitable.

Aether hired Merrill Lynch, the biggest investment bank in the world, and raised more than $1 billion in its IPO and subsequent stock offering in 1999 and 2000, making hundreds of millions of dollars for its early venture investors.

One of those investors was FBR. FBR's venture fund was an early investor in Riverbed Technologies, a Vienna wireless data software company. Aether bought Riverbed in February 2000 for stock, giving FBR shares in Aether. FBR later sold its Aether shares for a large profit. FBR got a small piece of Aether's investment banking business, but nothing compared with the business that went to Merrill.

Aether went on a buying spree with its investors' money, and its stock peaked at $315 a share right before the March 2000 Nasdaq crash. But none of its business plans really worked out and it had never made money.

In fall 2003, Aether's board decided that the various wireless data companies that Aether had assembled weren't going to make it money and it needed a new strategy. The board began interviewing a number of investment banks about its options, including selling the company, selling its divisions, buying more divisions or just liquidating.

David C. Reymann, Aether's chief financial officer since 1998, said that only FBR was able to come up with a clear plan. Aether hired FBR in February. "They just worked harder than the other banks we worked with," Reymann said.

FBR's plan hinged on two aspects of Aether's balance sheet.

First, Aether had net operating losses that it could carry forward, for tax purposes, into future years to offset any eventual net income, thereby reducing its tax liability when it became profitable. Aether, according to Reymann, has more than $740 million of net operating loss carry-forwards. But to take advantage of this, Aether needed to continue as a going concern; it couldn't go out of business.


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