Tuesday, July 5, 2011

Microsoft rumoured to buy RIM... or stockbrokers to sell RIM shares?

If you were a stockbroker with a big holding in RIM, which has seen its value fall enormously, you'd be delighted by the idea of Microsoft buying the Canadian company. Even if it was your idea in the first place.

The rumours about Microsoft wanting to buy a handset maker - first it was Nokia, then it wasn't, then it was - have revved up again. Look here on Bloomberg:

While Jim Balsillie and Mike Lazaridis, RIM's co-chief executive officers, said last week that their commitment to RIM is "stronger than ever," the company may now attract Microsoft and Dell, BMO Harris Private Banking said. A buyer would get a smartphone maker that is still dominant among corporate clients, offers greater security with its own e-mail servers and generates more free cash versus its market value than any of its rivals. Paying $40 a share still values RIM at a discount to comparable companies in the industry.

Wow, that's powerful logic - Microsoft has a lock on the corporate business, and look, RIM's market cap has fallen from C$84.3bn in June 2008 to just C$13.3bn today - its lowest value since the iPhone (which disrupted the entire smartphone market) was announced. And $40 a share? Why, they're trading at US$28 - we're in the money!

However it's also complete nonsense. Why would Microsoft sign a deal with Nokia which will cost it billions and in which it will swap skills back and forth, in one of the closest alliances it has ever had in mobile, if it were going to buy a handset maker? And guess what - Microsoft already owns a handset maker. Has everyone forgotten that Microsoft bought Danger in 2008, and went as far as producing phones (the not-lamented Kin) as a result?

Microsoft already has those skills in-house. And sure, buying RIM could splurge a few more of those billion that have been burning a hole in its bank account. Except that Microsoft is a software house, and it's putting its bets on software like Skype and Windows Phone, and buying RIM would be what stockbrokers call "catching a falling knife" - ie trying to grab it on the way down. Steve Ballmer is a good dealmaker. He wouldn't go after that deal.

As for Dell - true, it's a hardware company, but it's attached to Android in phones, and taking over RIM would be fraught; with all the problems inside RIM (such as trying to change platforms while its existing BB6 platform is smouldering, why would it want the hassle? Also the price would probably push it into a cash-and-shares (or shares-and-debt) purchase, which wouldn't be good. And the maxim about falling knives applies there too.

So why on earth is this being floated as an idea by a stockbrokerage?

"Given how significant the deterioration of the stock price has been, that alone will cause interest," said Paul Taylor, who oversees $14.5 billion, including RIM shares, as chief investment officer at BMO Harris in Toronto. "RIM still has meaningful market share in the U.S. and meaningful market share internationally, and RIM has an iconic brand."

Or, to ask the question a different way: what reasons could there possibly be for a stockbroker that has seen its holdings in RIM fall by 33% in the past two months to make the suggestion that there might be an acquisition on the way at a 50% premium on the current RIM stock price, which would tend to make people head back into the market to buy RIM shares (pushing the price up) before the acquisition begins?

We're sure we can't think of any.


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