BlackBerry maker Research In Motion is in deep, deep trouble. Shareholders are watching co-CEOs Balisillie and Lazaridis squander a once-bulletproof lead in the smartphone wars, and they want some changes. The company is currently looking at a new management structure, but that might be too little, too late.
More drastic measures seem to be in order. Would anybody want to buy the company? And if so, what would the buyer get? Let's find out.
The time is right
Should RIM be looking for buyers at all? After all, the company is still growing both sales and profits at a more than respectable pace. In fiscal year 2011, which ended in February, revenue was up by 33 percent year-over-year and earnings jumped 47 percent. Many CEOs would sell their mothers for numbers like that.
But in the handset wars, market share is everything. On that front, RIM isn't doing so hot. Smartphone buyers are overwhelmingly looking for iPhones and Androids. If the customers aren't lining up for new BlackBerrys, then the networks care increasingly less about supporting and marketing the platform, and the death spiral has begun. Those juicy growth numbers will surely turn negative in the near future unless RIM takes action.
What's in the bag?
If RIM strikes a deal before the financials turn pear-shaped, the company can point to miraculous growth statistics while beating its hairy chest like a Canadian lumberjack and promising more of the same. RIM also has $2.4 billion of debt-free cash on hand plus about $2.5 billion of net value in its manufacturing facilities. All things considered, the company would be worth something like $10 billion plus buyout premium in a cash deal today. (Confused by net cash and facilities bringing down the total value of the company? Think of it as paying $100 for a wallet with a $20 bill inside. You really only paid $80 for that billfold.)
Moving quickly would be a good idea. The further RIM's smartphone share slips, the smaller the buyout premium becomes. In recent telecom history, Google offered a 63 percent near-term premium for Motorola Mobility, and Level 3 Communications sweetened its Global Crossing deal by 55 percent. If the Canadians play their cards right, they might get a deal of that magnitude and everybody goes home happy.
A patented strategy
RIM's super-sized patent portfolio would be one key reson for that optimistic valuation. In the current Mexican standoff climate where anybody who is anybody is suing everybody else, wireless technology patents are worth their weight in plutonium. RIM itself took part in the bidding for bankrupt Nortel's patent treasures, and ended up on the winning side in an unlikely coalition with Microsoft, Apple, Sony Ericsson, and mobile oddball (but storage giant) EMC. So this company knows how the game is played.
According to Evercore Partners analyst Alkesh Shah, RIM is sitting on more than 10,000 advanced wireless technology patents, surely enough for any conceivable type of offensive or defensive action. But if RIM sits on its hands until the patent battles cool off, or until the major players have stocked up on ammunition elsewhere, the moment is lost.
But wait, there's more!
RIM is more than just a bag of patents, of course. There's a ton of history and there's still value in the CrackBerry brand name. A global network of phone factories is a unique advantage as Apple and others tend to rely on third-party manufacturers like Foxconn or Flextronics. Then there's the $200 million purchase of the QNX microkernel OS, which didn't work wonders for the PlayBook but might make a difference under new management. Is it still worth $200 million? Hard to say, but it's another asset to consider.
BlackBerry's longtime status as a premium provider of secure communications is another selling point. The BlackBerry Enterprise Server middleware remains a leading management system for mobile access to Microsoft Exchange and IBM's Lotus Notes or Domino systems. That function alone will keep the BlackBerry brand alive for years after the last puff of innovation leaves Waterloo, Ontario. The client software has been ported to Symbian, the old-school Palm platform, and to Windows Mobile 6; getting it done on iOS, Android, and/or Windows Phone 7 would keep the servers alive.
The usual suspects
So who would want to pay something like $16 billion, net of RIM cash and assets, for this intriguing but mismanaged mix of patents, hardware, history, and still-relevant software?
One common suggestion is Microsoft. Redmond has cash in spades and desperately wants to make a mark on the mobile industry. Moreover, the synergy between Exchange and BES practically begs for a buyout. It just makes sense.
But if Microsoft is buying anybody in the phone industry today, I'd expect it to be Nokia. CEO Stephen Elop is a former Microsoft VP who already made huge strategy changes in the direction of Redmond. This cute couple might as well get married already, and then Microsoft would have little reason to go polygamist on its committed partner.
Likewise, Google just got its missing patent shield courtesy of Motorola Mobility and I don't see the company investing in a second mobile platform. And let's not even drag Cupertino into the discussion—as rich as Apple is, these companies would go together like lamb chops and chocolate chips.
Hewlett-Packard has its cash committed elsewhere already. The day that IBM gets into semi-consumer sales by buying something like RIM is the day flying pigs darken the skies over Cincinnatti. So who else is big and rich enough to make the play, but not already too far down a different road to make the move?
The real contender
Come on down, Oracle! Here's why:
- Larry Ellison loves growth by acquisition and hasn't made a big, splashy deal since the Sun buyout some 19 months ago. His trigger finger must be itching for action by now.
- Already embroiled in legal battles with Google over Android, RIM's patents would give him fresh projectiles to hurl in the general direction of Mountain View.
- Oracle and enterprise-friendly businesses go together like peanut butter and Nutella. Under Oracle, RIM would forget about the consumer market and refocus on pure business-class products, where the brand still has a fighting chance.
- Larry loves picking up distressed companies on the cheap. See Sun again for a recent example, and remember that RIM today is worth one-fifth of the value at its 2008 peak.
- Finally, Oracle is no stranger to entering entirely new markets through buyouts. The company didn't sell servers before the Sun deal, and never cared for financial management software before buying Siebel, PeopleSoft, and JD Edwards. Grabbing RIM would be par for the course.
So there you have it: Oracle is RIM's ideal partner. All that being said, the company could still wither on the vine, all alone. Selling out to anyone else would require Balsillie and Lazaridis to bend their giant egos quite a bit, and I don't even expect them to abandon that awkward co-CEO arrangement. No matter how perfect the proposed deal, RIM won't find a buyer until shareholders rise up to replace these guys. By then, the patent-value boost will be long gone and everybody will go home angry.
Listing image by Photo illustration by Aurich Lawson
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