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As increasingly popular smart phones push wireless-data usage to record levels scale is going to become more important around the world, including in Canada.

Tibor Kolley/Tibor Kolley/THE GLOBE AND MAIL

No one doubts that Research In Motion Ltd. shares are cheap. The question is whether earnings are about to vanish. Bloomberg News apparently misses this point in an article on Tuesday that touts the upside to a takeover offer for the company.

RIM, Bloomberg says, "has lost so much value that an acquirer could pay a 50 per cent premium and still buy the BlackBerry maker for a lower multiple than any company in the industry." It then notes that, as of Monday evening, the shares were trading at just 4.7-times earnings, which is cheaper than any communications-equipment provider.

True enough. However, a number of analysts have been pointing out that the stock's price-to-earnings ratio is incredibly low because investors have little faith in the company's earnings. RIM management cut its fiscal first quarter earnings in April, and more recently slashed its full-year guidance as well.

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Declining market share is partly to blame. Due to the rising threat from iPhones and Android-based devices, RIM has seen its share of the North American market slip in the past two years to just 13 per cent from 54 per cent. One analyst – a relatively upbeat one at that – mentioned last week that RIM has essentially lost North America.

When shares fall, investors look to acquisitions as a potential way to recoup some of their losses, which is why rumours start to fly. With RIM shares down about 80 per cent from their high point in 2008, a takeover offer at a 50 per cent premium over the Monday share price would reduce that decline to about 75 per cent.

Still, a theoretical takeover and an actual takeover are two very different things. Recent takeover rumours surrounding Nokia Corp. – that it was being courted by Microsoft Corp. and, more recently, Samsung Electronics – were shot down, leaving the company still struggling to come up with competitive products.

Buying a stock in the hope that it will be taken out could leave investors facing more rumours than gains. Nonetheless, that seems to be good enough for RIM investors on Tuesday: The shares were up 7 per cent in afternoon trading.

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