OT Research In Motion Soars on Takeover Talk
By K.C. Swanson
Staff Reporter
08/01/2003 04:58 PM EDT
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Shares of Research In Motion (RIMM:Nasdaq - commentary - research), the maker of BlackBerry handheld devices, soared to a 52-week high Friday on rumors of a takeover by H-P (HPQ:NYSE - commentary - research). The stock closed up $3.20, or 13.3%, to $27.28.
The takeover rumor was reported in Reuters on Friday afternoon. The notion struck some as reasonable, though not everyone had heard the chatter.
"Once a quarter or so, there are some sort of rumors about some company buying or taking over RIM," says Kevin Burden, a mobile device analyst for IDC. "RIM has a lot of IP, a lot of patents. With that much technological know-how, I expect they'd be a prime candidate for a buyout or hostile takeover."
"The volume of the stock is quite significant; the rumor might have some legs," he adds. On Friday more than 14.6 million shares of RIM traded hands, far above average daily volume over the past three months of 1.5 million shares.
However, at Banc of America, Ian Winer, co-head of U.S. equity trading, said he hadn't heard any talk today of a possible takeover of RIM by H-P, and his firm makes a market in both names. "On a quiet Friday, people always seem to find something to talk about," he noted.
Contacted for a response, RIM and H-P both declined, saying company policy was to refuse comment on stock price-related inquiries.
Pushed by Dell Deal
In the past, RIM management has been perceived as unlikely to sell.
But the rumor mill got a boost in April when RIM competitor Good Technology, a private company, inked a deal to allow Dell (DELL:Nasdaq - commentary - research) to use its software. Like RIM, Good offers handhelds that feature "always-on" email -- a huge selling point for potential corporate customers.
There's little love lost between the two companies: Since June 2002, RIM has filed four lawsuits against Good, charging that Good's products infringe on RIM's patents and that it engages in unfair competition and false advertising.
On top of that, the deal with Dell puts Good in a position to make serious inroads into RIM's core market.
"Now Good Technology has an enterprise partner with substantial know-how to get solutions within the enterprise. If you're an enterprise customer who's gone to Dell for everything you own, now you can get wireless email very much like RIM," explains Burden. "So the attention has turned to RIM, with people asking, what is next for it? How do you combat a partnership like that? The ideal thing for RIM may be to sell or have a similar partnership with someone like an H-P."
H-P's own iPaq handheld devices don't offer the always-on email feature. "If H-P is interested in RIM, it would have a lot to do with the fact that RIM has a foothold in enterprise, that it has brand recognition and the technology for one of the key wireless applications for the enterprise, which is always-on email," says Burden. "The thought is that if a company like H-P or IBM (IBM:NYSE - commentary - research) or Sybase (SY:NYSE - commentary - research) were to take over the company, they could bring RIM's technology to the next level; they could it bring it to the masses."
Burnishing its appeal, RIM's business has shown a turnaround lately. Trader and analyst Gabriel Erdi of the Marketocracy Technology Plus fund says the fund exited its short position in the stock at the beginning of the year. "Our primary concern at the time was just competition from Palm (PALM:Nasdaq - commentary - research), Handspring (HAND:Nasdaq - commentary - research) and Sybase and how they were going to survive," he says. "But they've since signed licensing agreements with Microsoft (MSFT:Nasdaq - commentary - research) and Nokia (NOK:NYSE - commentary - research), that should help them going forward. It looks like they're on the right path."
Since the November quarter, RIM has managed to pump up quarterly revenue from $74 million to $87 million to $104 million, while narrowing its loss from $92 million to $31 million to $8 million, points out Erdi.
But at the same time its business has been on an upswing, RIM's stock has raced upwards, making any potential acquisition much more expensive, he adds.
The stock has more than doubled in the past year on the basis of its closing price of $27.28, compared with its Aug. 1, 2002 close of $11.04.
