Research In Motion RIM-T rumours are something of a cottage industry. From trading desks to tech blogs, everyone has a theory on what's next for the BlackBerry maker.
At the moment, stock market chatter around Research In Motion puts the company in one of its vulnerable periods - to the extent a national champion with a $38.5-billion market cap can be considered vulnerable to a takeover. Specifically, there's talk on trading desks that with RIM shares changing hands at a relatively modest 15 times its forecast earnings, and half the levels seen in 2008, big dogs such as Microsoft are sniffing around.
There is nothing new in this line of speculation - for years, analysts and money managers have been debating the logic of various partners for RIM.
There's also nothing right now to suggest talks are actually taking place between RIM and a potential suitor. Steve Ballmer hasn't been seen skulking about Waterloo, and even if he was, it wouldn't mean much, as the Microsoft CEO is a frequent visitor to Canada's top tech university, just down the road from RIM's head office.
However, there is a great deal of noise. So without further ado, here are a few reasons folks on the Street see Canada's largest tech company as tempting target.
First and foremost, RIM occupies an enviable place at the top of the smart phone food chain. Any competitor that dreams of challenging Apple's iPhone for domination of the lucrative handheld market would see the BlackBerry as the logical way into the fray. And we know how Microsoft loves to mix it up with Apple.
Then there's the wave of consolidation that's playing out in tech. As markets recover, it's game on for mega-deals in this sector. A site called TheDeal.com noted earlier this week that when Hewlett-Packard recently dropped $13.9-billion (U.S.) to buy Electronic Data Systems, it inherited a RIM relationship. That newly-forged link means HP also gets mentioned as a potential suitor.
Within RIM, there's always been a well-developed streak of independence: co-CEOs Mike Lazaridis and Jim Balsillie have built a world-beating franchise in the face of continual skepticism.
But both executives are now reaching that stage in executive life when legacy and outside interests can take priority over building the next BlackBerry. As you may have heard, Mr. Balsillie has a passing interest in pro hockey. And Mr. Lazaridis has put $150-million (Canadian) of his dough into no less a challenge than figuring out the origins of the universe, backing Waterloo's Perimeter Institute for Theoretical Physics.
For this pair, and the RIM board, cashing out may hold an attraction now that never existed in the past. Despite their dominant personalities within RIM, neither executive holds anything close to control: The pair are RIM's largest shareholders, but each owns less than 6 per cent of the equity.
Will RIM get taken out during this vulnerable phase? Or is the recent dip in this stock just another pause, before a new generation of smart phones sends the company's valuation soaring again? That, folks, is one of the hottest topics of conversation on the Street.
Banks need a Mr. Fix-It
For three Canadian bank CEOs, one strategic issue dominates all others: How to fix U.S. retail banking divisions that simply aren't pulling their weight.
Toronto-Dominion Bank, , Bank of Montreal and Royal Bank of Canada have all amassed substantial U.S. branch networks, and none of these units are kicking off acceptable returns. TD Bank can at least point out that it's making money south of the border - over the past nine months, the unit turned a $280-million (U.S.) profit.
In contrast, Royal Bank branches in the southeastern U.S. lost $346-million and the Bank of Montreal network in what's known as Chicagoland lost $70-million. All three U.S. units are far less efficient than the retail operations of their larger Canadian parents, partly because they lack the scale of national branch networks. Now, we're in the teeth of a brutal U.S. recession, one that's been particularly hard on banks, so weak returns are to be expected.
But for the bank CEOs and the boards, it's a subject of concern when a division doesn't turn out the double-digit return on equity that Canadian bank shareholders expect. What makes this problem more pressing is that none of these units seem capable of posting this kind of profitability in the foreseeable future.
So, what's a bank CEO to do?
Well, executives who need advice need look no further that BMO Nesbitt Burns' research department, where analysts John Reucassel and the redoubtable Hugh Brown weighed with a report this week on the Canadian banks' excellent adventure in U.S. retail banking.
"The current environment highlights the operating challenges faced by the Canadian banks. Specifically, even when loan losses return to 'normal' levels, generating adequate returns on investments remains elusive," said the BMO Nesbitt Burns team.
"The final solution to their under-scaled operations is to buy or sell (sell outright or partner with a larger player)," said the two analysts, advice that is easy to give, but a little harder to execute.
Polishing up their crystal balls, Mr. Reucassel and Mr. Brown said: "The inability to generate sufficient returns could cause Bank of Montreal, TD Bank and Royal Bank to evaluate strategic alternatives. Royal Bank and Bank of Montreal may consider a partnering strategy while TD Bank may be more inclined to grow its business in the U.S."
