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Goldman downgrades RIM on ‘disappointing’ U.S. BB10 launch, stock slumps

These are stories Report on Business is following Monday, March 25, 2013.

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RIM slumps
Shares of Research In Motion Ltd. slumped today, sinking more than 7 per cent before recovering somewhat in the wake of a downgrade from Goldman Sachs Group Inc. after the launch of the new BlackBerry 10 in the United States. The shares later closed down 4.5 per cent in Toronto.

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Goldman cut its recommendation to "neutral" and its 12-month price target to $17 (U.S.) from $19 after what it said was a disappointing launch of the new BB Z10 at AT&T last week. Goldman analysts also removed RIM from their "Americas Buy" list.

The AT&T launch was "disappointing, with limited marketing and tepid sell-through at AT&T and Best Buy stores alike," Goldman said.

"While we thought the international launch was solid, the U.S. launch is critical for BlackBerry's ultimate success."

Having said that, Verizon and T-Mobile are yet to begin selling the new devices.

"We continue to view the investment case for BlackBerry as a binary outcome, depending on the success of the BB10 launch and its ability to ultimately turn around the company's declining market share trajectory," Goldman said.

"We now assign a 20-per-cent probability of success for BB10, down from 30 per cent previously, as the disappointing launch of the Z10 at AT&T reduces our confidence that sell-through of the BB10

will be successful in the important U.S. market. Our retail checks at over 20 store locations since March 22, including at AT&T, Best Buy, and Radio Shack, revealed a surprising lack of marketing support and poor positioning of the product."

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As The Globe and Mail's Iain Marlow reports, investors will be watching closely for signs of initial BB10 sales in other countries when RIM reports fourth-quarter results on Thursday.

The wider cost of the Cyprus bailout
Cyprus may have averted immediate calamity with a €10-billion bailout, but euro watchers are questioning the ramifications of the weekend "farce."

As our European correspondent Eric Reguly reports today, Cyprus struck a deal with the European Union, European Central Bank and International Monetary Fund that will see the country's second-largest bank split into a "good bank" and "bad bank," with the good stuff going to Bank of Cyprus.

Deposits of up to €100,000 are protected, but those over face hefty losses.

This all played out against a deadline, set by the ECB, which threatened to deny emergency funding to Cypriot banks if their government did not reach a deal by today. That would have set the stage for a meltdown and Cyprus possibly quitting the euro zone.

The agreement was approved by the finance ministers of the embattled 17-member currency union, which has lurched from bailout to bailout over the past several years since Greece started the ball rolling.

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The deal may have been done, but, as with other bailouts, there are fears over what comes next.

"The skeptics (most of us) will now fret about execution risk and the possibility that agreed austerity/reform will be watered down and Cyprus will need more money in due course," said Kit Juckes, the chief of foreign exchange at Société Générale.

"The EU has kicked the can down the road in the sense that this deal removes the risk of the crisis exploding in euro-departure this week, and kicked Cyprus where it hurts in the sense that deep recession is guaranteed," he said in a research note today.

"But the focus 'should' now drift slow away from Cyprus and to broader implications of this farce and the background themes of the global economy."

Note how bank depositors are now being treated, Mr. Juckes said. Indeed, deposits above the €100,000 level, in both of the banks affected, will be earmarked for the rescue, to the tune of some €4.2-billion to help pay debts and bolster the Bank of Cyprus.

That's expected to shave 40 per cent off savings, and will hurt many Russian depositors.

"On the broader implications: Expect forests to be felled to express global outrage at the process by which Europe reaches decisions. Meanwhile, banks will be more cautious, consumers more timid, bank depositors a little more wary and growth across Europe a little weaker even than it was before."

Mr. Juckes is not alone in forecasting further trouble down the line, and effectively moving the goalposts.

"The outcome will be devastating to the Cypriot economy with potential further ramifications, and pre-emptive deposit flight from any challenged European economies in future will hasten and magnify future crises, but for now at least a crisis has been averted," said Derek Holt and Dov Zigler of Bank of Nova Scotia.

"While the nation is of very limited economic significance to the euro zone, the policy response to the crisis represents a game changer in how Europe addresses financial market pressures," they added.

"Multiple precedents have been set including wiping out senior bondholders, imposing capital controls, and haircutting depositors through one form or another and that may well change the dynamic in future crises."

New bids for Dell
Dell Inc. is getting more than it bargained for in the initial deal to take the computer giant private.

Dell said today it now has two more bids, one from Blackstone group, the other from Carl Icahn, to compete with last month's $24.4-billion (U.S.) offer from Silver Lake Partners and founder Michael Dell.

The new bids, the company said, "could reasonably be expected to result in superior proposals."

The original offer was $13.65 a share in cash. The bid from Blackstone, a private equity group, is valued at more than $14.25. Mr. Icahn already has amassed an interest in Dell, and his bid values the shares at $15.

"We are gratified by the success of our go-shop process that has yielded two alternative proposals with the potential to create additional value for Dell shareholders," Alex Mandl, chairman of Dell's special committee, said in a statement.

"We intend to work diligently with all three potential acquirers to ensure the best possible outcome for Dell shareholders, whichever transaction that may be."

Canada nears trade deal
Finance Minister Jim Flaherty says Canada is near to completing an elusive free trade agreement with South Korea, but some Canadian exporters warn they are already years behind the U.S. and other rivals that did deals first with the Asian manufacturing powerhouse, The Globe and Mail's Barrie McKenna and Greg Keenan report.

The long-stalled free trade talks were restarted late last year as the federal government steeped up efforts to progress in its push to expand trade to fast-growing Asia and diversify away from the U.S., the destination for 70 per cent of Canadian exports.

Reaching a final agreement with South Korea pits the interests of auto makers, who have long fought duty-free entry of Hyundai and Kia vehicles in their home turf, against Canada's agri-food exporters, who are losing market share to rivals in the U.S. and Europe which already have free trade there.

Trade experts said Canada almost certainly will have to make concessions on autos if wants better access for beef and pork.

Study gives nod to female board members
Female corporate directors make better decisions on complex issues than men, raising questions about whether boards are doing a disservice to investors when they include no women, a new study argues.

A review of decision-making processes used by 624 Canadian corporate directors found women scored higher on average on sophisticated "complex moral reasoning" skills, which suggests they make better decisions on complicated matters, The Globe and Mail's Janet McFarland reports.

The findings mean boards "may actually be shortchanging their investors" if they have no women around the table, says study co-author Chris Bart, a business professor at McMaster University in Hamilton.

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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