RIM's Strategic Review Prompts Investor Demands for Sale
Research In Motion Ltd. (RIMM) investors see an outright sale as the best choice for the BlackBerry maker after a series of failed turnaround efforts led management to explore strategic options.
RIM said this week it hired JPMorgan Chase & Co. (JPM) and RBC Capital Markets to help it find a partner or license its operating system. That won't be enough to reverse the company's stock decline and flagging sales, said RIM investor Vic Alboini, chairman of the Toronto-based investment firm Jaguar Financial Corp. (JFC) He'd rather attract a buyer, such as Microsoft Corp. (MSFT) or International Business Machines Corp. (IBM)
"We would like to see a sale of the company or a breakup, and if a breakup, the sale of each of the parts," said Alboini, who has urged RIM to sell itself since at least September. "We're pushing and cajoling RIM to get to the promised land of a sale or breakup."
RIM, beset by shrinking market share, executive turnover and product delays, tumbled 7.8 percent yesterday, bringing declines in the past year to more than 76 percent. The company said this week that it will probably report its first quarterly operating loss since 2004, and Chief Executive Officer Thorsten Heins has yet to give a release date for the next generation of BlackBerry phones aimed at reinvigorating sales.
The company's next steps may include forging partnerships, licensing its software and looking at "strategic business model alternatives," Waterloo, Ontario-based RIM said. It's also attempting to streamline operations by reducing spending and headcount. RIM's shares declined less than 1 percent to $10.29 at 11:10 a.m. in New York.
"It's a business model that's badly broken, but it's got assets that are worth something to somebody," said David Baskin, president of Toronto-based Baskin Financial Services Inc., which manages C$450 million ($437 million) in equities. While he doesn't own RIM shares, he's considering investing in the company because of the takeover prospects. "You don't hire a banker unless you're considering a sale," he said.
Heins, who took over from RIM co-founders Jim Balsillie and Mike Lazaridis in January, hasn't ruled out a sale of the company, though he said in March he's not focused on that scenario.
RIM declined to comment beyond reiterating previous statements made by Heins.
"As Thorsten said on the company's fourth-quarter earnings call, 'We believe the best way to drive value for our stakeholders is to execute on our plan to turn the company around.'" RIM said in an e-mail. "This remains true."
Saying the Opposite
Heins's stance may just be a smoke screen, said Tom Caldwell, CEO of Caldwell Securities Ltd. in Toronto, which manages more than $1 billion in assets. His firm sold its RIM stock about six months ago, while keeping a few thousand shares in retail accounts.
"The best way to say you're considering a sale is to say you're not for sale," Caldwell said. "I think they're looking for a buyer for the whole thing."
U.S. companies have plenty of cash to spend, and Microsoft has to be seen as a front-runner to buy the BlackBerry maker, Caldwell said. RIM would give Microsoft a bigger foothold in the smartphone market, where it's competing against Apple Inc. (AAPL) and Google Inc. (GOOG) Microsoft already has a partnership with Nokia Oyj (NOK1V) to build devices based on the Windows Phone software.
U.S. private-equity firms also may be attracted to RIM, Caldwell said. A restructured RIM focused on the corporate market might be the kind of business that a buyout firm would be interested in, particularly if RIM has already cut some of its fat, he said.
RIM said this week that it will be making "significant" reductions in spending and staffing as it looks to save $1 billion in operating costs this year.
Nokia, based in Espoo, Finland, also could be a bidder for RIM's phone business, said Jaguar's Alboini. Facebook Inc. (FB), the world's largest social-networking company, is another possibility, he said. That company is trying to bolster its mobile-phone services. Buying RIM would bring a captive audience for ads, which "could partially solve their mobile advertising gap in revenue," Alboini said.
IBM and Microsoft are the two most logical acquirers of RIM's network-services business if the company were broken up, Alboini said. That division operates encrypted e-mail servers and handles other functions for corporate customers.
Representatives of Microsoft, IBM, Nokia and Facebook declined to comment on whether they would consider buying RIM.
As it restructures, RIM shouldn't expect to get aid from the federal government, Canadian Finance Minister Jim Flaherty said today.
"It has been a leading company for Canada in terms of research, development and innovation, but it does need to reorganize itself, and that's something that we expect the leaders in the company to do on their own," Flaherty told reporters in St. Martins, New Brunswick.
Flaherty wouldn't speculate on RIM being acquired by a foreign company. He said he wasn't aware of the government receiving requests to review a deal under the country's foreign- takeover law.
A takeover of RIM's size would trigger a review to determine whether an acquisition is in the national interest. In 2010, Prime Minister Stephen Harper's government rejected Melbourne-based BHP Billiton Ltd. (BHP)'s $40 billion hostile takeover of Potash Corp. (POT) over concerns that the sale would cut jobs and tax revenue.
BlackBerry 10 Release
Acquirers are unlikely to consider a deal before RIM introduces BlackBerry 10 later this year, Peter Misek, an analyst at Jefferies & Co., said in a report. Facebook is an unlikely buyer, and Microsoft will probably wait to see how its own Windows 8 software fares before acting, he said.
At the same time, RIM's falling valuation has made it an increasingly affordable target. The stock has dropped more than 90 percent from its mid-2008 high, when RIM's hold on business users was secure and the iPhone had only been on the market for a year.
"You've got a lot of cash, a lot of assets and a lot of patents," said Don Yacktman, founder of Yacktman Asset Management, RIM's seventh-largest investor. The firm held about 9.7 million shares of RIM at the end of the first quarter, giving it a stake of about $100 million in the company. "There's still a lot of value there."
Google spent about $12.5 billion for Motorola Mobility Holdings Inc. this month to boost its patent portfolio. RIM was part of a group that included Apple and Microsoft that paid $4.5 billion to buy bankrupt Nortel Networks Corp.'s 6,000 patents and patent applications.
Todd Johnson, a fund manager at BCV Investment Management in Winnipeg, Manitoba, said a buyer may step forward before the BlackBerry 10 rollout. While his firm doesn't own the stock, he bought shares himself a couple of weeks ago when they were trading around $11.
"You'd think someone would come in ahead of BlackBerry 10," Johnson said. "The user base, a network operating center, high-end security. Someone's got to want that."
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