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Old 10-09-2008, 06:07 PM   #1
serrano_yejo
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Default Research in Motion: Vulnerable to a Takeover Bid?

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Research in Motion: Vulnerable to a Takeover Bid? - Seeking Alpha

AUTHOR : Mark McQueen


ImClone, Wachovia, WaMu, Lehman and Merrill Lynch are just a few of the names that have been picked off by the M&A angels over the past few weeks. A short year ago, each was fiercely independent with a seemingly bright future. For a variety of reasons, each is now (or soon to be) a subsidiary of a larger firm.

It wasn’t all that long ago (June 2008) that Research In Motion (RIMM) ((TSE:RIM)) was sporting a market capitalization of $83 billion. As of tonight, the market cap has shrunk to $32.5 billion. Depending on which equity research analysts you believe, RIM is trading at 10-15 times 2010 earnings. A few weeks ago, these same analysts thought that 30-35x was an appropriate figure. My, how times change.

Without a doubt, RIM is and will continue to be a profitable company with plenty of cash, no debt, and a bunch of new products (Bold, Storm and Pearl Flip) rolling out at this very moment around the world. But, sadly, that doesn’t mean that it will be able to resist an opportunistic takeover offer from the likes of Microsoft (MSFT) et al.

The best positioned to do a deal is certainly Microsoft. It has not been shy about using timing and brute force to attempt to expand its empire (think Yahoo), and the Zune never really got off the ground. With a $212 billion market cap, annual profits of ~$17 billion, and cash of about $25 billion as of June 30th, they can certainly afford to swing a deal. And it might even be accretive to earnings without the need for big synergies. I recognize that the idea has been pooh-poohed in the past by the likes of the respected Eric Savitz , but that was when RIM’s revenues were just $5.5 billion and the market cap was $46 billion; the run-rate revenue has doubled since then, yet the market cap is down 33% since his 2007 Barron’s story dismissing the idea outright.

Hewlett Packard (HPQ) is smaller than Microsoft, it also trades at 12x earnings, and was rumoured to have been interested in acquiring RIM earlier this decade, which caused RIM shares to jump 20% in the space of a few days. The iPaq was almost as “useful” as the Palm, and with no cell phone offering HP might be tempted to re-engage on the topic. If HP liked RIM with fewer than 2 million subscribers in aggregate, they must love it now that Jim and Mike are adding more than 1 million additional subscribers each and every month. Just because the 2006 $4.5 billion acquisition of Mercury Interactive was a stretch shouldn’t mean that a deal for RIM isn’t warranted, although the large share component wouldn’t likely tempt many in today’s market.

Nokia (NOK) is an oft rumoured bidder for RIM, but with a relatively modest market cap, a weak EPS multiple, and only $8 billion in cash, it couldn’t get close to offering something of interest to shell-shocked RIM shareholders.

IBM has resources, of course, but the lack of interest in consumer products must ensure they sit on the sidelines of any RIM M&A party.

One can’t count Google (GOOG) out of the picture, if only because they seem to be so unpredictable. Although they don’t have the cash to compete with a Microsoft bid, they have a lofty EPS multiple, which certainly means they can offer an excellent premium if an all-stock deal would work for RIM’s institutional shareholders (which I doubt).

Round and round the horn one may go on this issue, but you always come back to mighty Microsoft. To think that we investors thought RIM was “cheap” at $115/share just a few weeks ago. But not even a partial nationalization of the British banking system nor a coordinated 50 bps rate cut can keep the Dow futures in the black at this point.

Hedge funds need capital for feared redemptions. Mutual fund managers yearn for anything to differentiate themselves from the pack. RIM’s largest shareholders can’t help but hit a decent bid, and in Canada, RIM’s Board of Directors can’t try the “Just Say No” takeover defence that worked wonders at Yahoo (my, how Yahoo shareholders must regret that decision, in hindsight.)

“This would be looked at as a gift” if it came, said the seasoned head of one Canadian sales desk. It would be extremely bad news for the Canadian technology market, mind you, but if you are a PM at Fidelity (35 million shares), TD Asset Management (27 million) or Janus (21 million), and you can enjoy an immediate C$700 million market-to-market gain in your funds, right before the end of the fiscal year…you hold your nose and take the money.

I certainly don’t wish this on one of Canada’s greatest companies, but there is no reason to believe that RIM is immune — through no fault of their own — from the brutality of the current capital markets.

All amounts in US$ unless otherwise indicated.

Disclosure: I own RIM.
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Old 10-09-2008, 06:38 PM   #2
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I hope you bought low.

I didn't realize Lehman and WaMu were "victims" of the M&A guys. I thought the government took control and sold them off as they became insolvent.

A poorly written article. I would expect more from Seeking Alpha, but I guess not in this case.
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Old 10-09-2008, 06:55 PM   #3
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Quote:
RIM is trading at 10-15 times 2010 earnings. A few weeks ago, these same analysts thought that 30-35x was an appropriate figure. My, how times change.
Brilliant. And I thought it was the market crashing that was dropping trades down so low.

Quote:
But, sadly, that doesnxxx8217;t mean that it will be able to resist an opportunistic takeover offer from the likes of Microsoft (MSFT) et al.
MSFT? More like SMFH.

Quote:
The best positioned to do a deal is certainly Microsoft.
Yes, because they are known for stable, secure devices.

Quote:
The iPaq was almost as xxx8220;usefulxxx8221; as the Palm, and with no cell phone offering
Mine is still useful....at least I'm sure it would be if I could find it.

Quote:
Jim and Mike are adding more than 1 million additional subscribers each and every month.
Well, if there was ever a reason for a company to fear a buyout.....

Quote:
Nokia (NOK) is an oft rumoured bidder for RIM, but with a relatively modest market cap, a weak EPS multiple, and only $8 billion in cash, it couldnxxx8217;t get close to offering something of interest to shell-shocked RIM shareholders.
And?

Quote:
IBM has resources, of course, but the lack of interest in consumer products must ensure they sit on the sidelines of any RIM M&A party.
They are much too busy tanking the hosting of my company's SAP implementation.

Quote:
Round and round the horn one may go on this issue, but you alwayscome back to mighty Microsoft.
Yes, that's because I just had to reboot my PC again.

Quote:
To think that we investors thought RIM was xxx8220;cheapxxx8221; at $115/share just a few weeks ago.
It was. Now it's cheaper. Like EVERY OTHER stock right now. Get a clue.

Quote:
Disclosure: I own RIM.
If you mean the stock, it's RIMM. Get it right.
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Old 10-09-2008, 07:10 PM   #4
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Lets not forget market cap, in that RIM is four times larger (well as of a month or so ago) than Ford.
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Old 10-09-2008, 09:37 PM   #5
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I bought RIMM @ $77, thought it was a bargain but the market went down the toilet. I will buy more tomorrow @ around $60 to cut my lost by around $8, then I will sit and wait, don't need that cash now anyway.

Take over bid? Yes I think so, be that MSFT or others, PE ratio is very attractive. As a matter of fact, RIMM and APPL was mentioned tonight at CNBC (one of the guys from Fast Money), said RIMM will be at least 20% higher in 6 weeks, if you buy today. You can certainly take it for granted, but I will be buying tomorrow. Besides RIMM, CAT, AA will also be on my shopping list.

Last edited by jrsmooth; 10-09-2008 at 09:40 PM..
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Old 10-10-2008, 09:30 AM   #6
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Its amusing, if you look in the last 30 days RIM and Apple have had nearly identical drops in % in their stock. MSFT has done better than both.
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Old 10-10-2008, 10:39 AM   #7
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If Microsoft buys RIM, my current Blackberry will be my last. I've had far too much experience with Windows Mobile phones to want anymore. And unfortunately, the way MS operates, its unlikely they would be willing to let well enough alone. More than likely they'll try to "improve and extend" the BB experience, which will thoroughly ruin it.
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Old 10-10-2008, 10:41 AM   #8
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MSFT wont purchase RIM. Remember 6mo ago or so they said that by 2010 40% of all PDAs will be WinMo? Currently RIM holds about that in the worldwide PDA market. Not to mention its very unlikely that the bid would be approved. RIM does add millions of customers a quarter, and increases profits by 80-100% over ly. Their business strategy seems to be working just fine for them.
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Old 10-10-2008, 10:43 AM   #9
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Quote:
Originally Posted by serrano_yejo View Post
Nokia (NOK) is an oft rumoured bidder for RIM, but with a relatively modest market cap, a weak EPS multiple, and only $8 billion in cash, it couldnxxx8217;t get close to offering something of interest to shell-shocked RIM shareholders.
Anyone who uses the word "oft" is a dip and has no reason to be writing other than their own ego.

That word alone negates any opinion or advice put forth by this author.
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Old 10-10-2008, 07:49 PM   #10
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If Microsoft did buy RIM, wouldn't that start those anti-trust issues again - this time with handheld devices? Given the number of BB users, then you have those phones that have BlackBerry Connect, couldn't one argue that Microsoft is trying to control this market segment?
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Old 10-10-2008, 09:47 PM   #11
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Sure seems like the bottom has fallen out of the stock market recently. I was fortunate. I bought RIM for around $80 a share, and a short time ago sold it at around $130 because of an emergency. The next day it started to fall, and it seems like it hasn't stopped since.
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Old 10-11-2008, 09:39 PM   #12
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If MSFT were to buy RIMM, I seriously doubt MSFT would do anything drastic to RIMM. its strategies and products in the short term, because RIMM would simply be a money generating vehicle for MSFT, there is just too much different between WinMo and BB. At best MSFT would put its logo on the BBs, but the BBs will still be the BBs, with a MSFT logo of course. This is no longer the "If you can't beat it, buy it and kill it" era anymore. MSFT is not stupid, it knows how much RIMM is worth.

This case also applies to NOK or others want to buy RIMM, therefore I do not foresee any drastic changes to RIMM's product offering, regardless who buys RIMM.

Just my two cents.
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