Microsoft Corp. and Nokia Corp. did a financial analysis on a takeover of Research In Motion Ltd. earlier this year but were scared off because of the rapid deterioration of the BlackBerry maker’s market share in the United States, according to a source familiar with the matter
Private equity funds have also looked into a potential purchase of Waterloo, Ont.-based RIM, but turned away for similar reasons. The funds feared that a turnaround was unlikely in the U.S., a bellwether for global smartphone sales. Without a change of fortune in its largest market, RIM’s future cash flow is uncertain, making it difficult to forecast how much debt the company could manage if it was acquired in a leveraged buyout.
RIM has been battered by a series of problems in 2011, most seriously the flop of its tablet computer, the PlayBook, and the swift loss of smartphone market share to rivals like Apple Inc., HTC Corp. and Samsung Electronics Co. Ltd. The stock hits its lowest point since 2003 this week, and its shrunken market value of $7.4-billion has led to more talk that it is vulnerable to a takeover.
The shares surged in after-hours trading Tuesday and in regular trading Wednesday after reports by the Wall Street Journal and Reuters said that a number of parties had examined the idea of buying RIM, including Microsoft, Nokia and Amazon.com Inc. In Toronto, RIM closed up nearly 10 per cent from Tuesday’s level, despite analysts’ warnings that an imminent sale of the company was unlikely.
A RIM spokeswoman said the company does not to comment on “rumours and speculation.”
That rivals and private equity firms ran the numbers on a takeover highlights RIM’s precarious position as its executive team tries to execute a turnaround in the U.S. while expanding in emerging economies. The company’s top executives unveiled a worsening outlook for the fiscal fourth quarter last week and said the launch of a powerful line of smartphones running a new operating system will be delayed until late 2012.
Some investors say they are reaching out to RIM’s board of directors in a bid to make changes, but are getting nowhere. They said they doubt the company’s board has the stomach for a radical change in strategy and are unlikely to listen to calls to shuffle top management, including the company’s co-CEOs, Mike Lazaridis and Jim Balsillie, who also serve as co-chairmen of the board.
In June, the company announced it would strike a committee to report to the board by January 31, 2012, on the unusual leadership structure. The board has promised to publicly respond to the committee’s findings within 30 days.
Sentiment surrounding the company has turned markedly sour recently, after the two CEOs told investors on a third quarter conference call on Dec. 15 that phones running the BlackBerry 10 operating system – based on the company’s acquisition of QNX Software Systems – will come out nearly almost a year later than promised.
“I think in terms of separating the chairman and CEO roles, it’s possible [the board]might have some success there, but I don’t think they’ll have any success in terms of replacing Mike and Jim,” said one fund manager, who has sold down his firm’s large position in RIM but remains a shareholder. “I think RIM wants to see how the new QNX smartphones are received in the market before they would contemplate selling out.”
At the same time, pressure is likely to keep building on the company. Vic Alboini, chief executive officer of Toronto merchant bank Jaguar Financial, said on Wednesday that three members of an informal investment group have met with RIM’s top executives. Mr. Alboini, says his group, whose members he will not disclose, hold roughly 10 per cent of RIM’s shares. He said he believes the board needs to break up and sell the company, to capitalize on the hidden value of its strong business in providing secure communications for enterprises.
“There will be change, the question is when and how,” said Mr. Alboini, who has vocally criticized RIM in press releases. “There are not a lot of shareholders saying, ‘Let’s wait until BlackBerry 10 to do something.’”