June 20, 2011 | In: Technology

Is RIM a Target for Takeover?

First, I want to say before starting this article that I am not short on RIMM. I don’t have any long or short position in RIMM, and nor do I intend to (at least at the current price level).

There is a lot of gossip at the moment that RIM (Research In Motion), at the current price level, is now a takeover target. So, is this really true? Will RIM accept that another company buys it? Is it better for RIM to be bought by another company? And finally, which company can afford RIM at the current market cap of 13.60 billion (at the time of writing – at the current rate, maybe by the time I finish this article the market capitalization of the company will be down to $13 billion).

Is it true that RIM is a takeover target?

No, it’s not. Not a single company has expressed interest in RIM or its technology (especially its soon-to-be-obsolete BBM service). Reasons of why there is no offer yet may include:

  • Large companies are waiting for a better entry point. At over $13 billion, RIM would still considered heavy on their balance sheets.

  • Belief (and rightly so) that the BBM service will soon be obsolete and can easily be cloned.

  • Not seeing any value in RIM’s hardware.

  • The Legal issues that RIM is facing (especially those dealing with security/privacy in developing countries), and that the company that will buy RIM will face (including being accused of a monopoly in case it’s an established telecom company).

Will RIM accept a buyout offer?

That’s a very important question. We all know how stubborn and arrogant RIM’s founders are. They saw what’s coming years ago, and yet they didn’t even budge, they didn’t make any action to adjust their strategies to better integrate their products and their services in this ever connected world. They wanted (and still want) to keep the technology closed, and they keep on ignoring all the material signs that what they’re doing will be no longer relevant in a couple of years. In short, they refuse to change (that’s a main characteristic of a stubborn person). Obviously, they couldn’t care less about their investors, but the question is, do they care about their pockets? If they leave the company as is then they will soon (we’re talking in less than a year) go from profitability to loss, which means that they will no longer be able to make the money that they used to make. Selling RIM will ensure that they get out while they still can, while they’re still making money, a lot of money. Now even if they accept a buyout offer, the problem is that RIM is a Canadian company, and when it comes to huge buyouts like these, the Canadian government has a saying in the decision, and may block it, if it is deemed (by the Canadian government) that the deal will not provide a net profit for Canada (Canada is not equal to RIM). For those of you thinking that this is just chit-chat and the Canadian government will never do this, I want to assure you that it may very well will (wow, well will!). In fact, the Canadian government blocked a huge buyout deal last year, when BHP Billiton wanted to buy Potash Corporation of Saskatchewan.

Is it better for RIM to be bought?

Yes, It’s better.

  • It’s better for the investors: All the knowledgeable investors know that RIM, as a standalone company, has no future whatsoever. For them, it’s definitely better to see RIM bought than to see their stocks trading in single digits. For some investors, when the stocks start trading at the single digits (and they will, if the company doesn’t get bought) their initial investment in RIM will be just a fraction of what they originally bought the stock at.

  • It’s better for Canada: RIM is becoming more of a liability than an asset to Canada. There are top government officials traveling to distant countries every now and then trying to address security and privacy concerns. Additionally, in case RIM goes bankrupt, there will be thousands of jobs (we’re talking about 17,500 jobs here) that will be lost. Better to save a few thousands of these jobs than to lose them all.

  • It’s better for top management: As I pointed out above, management should have no interest keeping the company if they don’t want to change its main business objectives. No sane management should stay in a company to witness its transition from profitability to loss if they are offered the chance to get out at profitability.

Which companies can afford (and can see benefit) in RIM?

Even at $13 billion, there are many companies that can afford RIM, including:

  • Google: With its strong cash reserves and large market cap, Google is an important candidate that may consider buying RIM. But why would Google do this? Well, it’s obvious that Google is always on the hunt for new investments and expansions in the mobile market (Google strongly believes that the future is the mobile), and buying RIM will be considered as a great investment for Google. Google will be able to integrate the BBM with Android, which will leave Apple with no other option but to join the bandwagon and allow BBM on its phones as well.

  • Apple: With zero debt, a strong foothold in the mobile market, and probably the largest cash reserve of any US company, Apple is, in my opinion, the strongest candidate to buy RIM. Buying RIM will give Apple near absolute control of the smartphone market (which is probably one of Steve Jobs’ fantasies). However, I seriously doubt that Apple will be interested in buying RIM for that reason alone (and that’s why I listed it as number #2, after Google).

  • Microsoft:: Microsoft is always desperate to get into the mobile world, and every time it does get in, it is faced with a disgraceful defeat and gets out. How many of your friends have the Windows Phones or have a Phone with a Windows OS? Figured so! One of the other reasons that Microsoft would want to buy RIM is because Google wants to buy it as well (Microsoft seems to want anything that Google wants). I think that if Microsoft buys RIM, then it will be the absolute end of all RIM’s products, as Microsoft’s bureaucracy and slowness in decision making is worse than the worst government’s agency.

  • Mobile carriers: Mobile carriers such as AT&T and Verizon (Note: Sprint can’t afford it) would definitely be interested in buying RIM. They have the cash to do it, and they obviously would benefit from the deal. However, since nearly all mobile carriers provide the blackberry service on their networks, I’m not sure how they will react when one mobile carrier (AT&T, for example) buys RIM, will they still continue to run the service? Or would they cancel it just because they refuse to directly benefit that mobile carrier (after all, nobody wants to strengthen his competition)?

Again, no buyout offer will happen until the dust settles, which may happen somewhere around the $20 mark (or maybe a P/E of 3 – which is very, very attractive). And when this happens, you will see all the above companies scavenging on RIM, or what’s left of it. This is sad, but what’s even sadder is that this is all the result of the absolute stubbornness of two individuals.

1 Response to Is RIM a Target for Takeover?

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RIM Is Worth More than Its Market Cap « Fadi El-Eter

September 22nd, 2011 at 9:09 am

[...] will go bankrupt soon, that it won’t recover, etc… I did say though, at one point, that RIM could be a target for takeover. I think all investors should be thinking about a takeover potential more than ever at the moment, [...]

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