Carving Up RIM Is an Unappetizing Prospect
Investors counting on a breakup to unlock Research In Motion’s true value best not get their hopes up. Though RIM has already appointed bankers to review its strategic options — which one analyst infamously described as “sell, break up or die” — selling off the company for parts or in its entirety at this point in time would be a daunting undertaking. And, in the end, it might not even be worth it.
Credit Suisse analyst Kulbinder Garcha recently took a look at RIM’s prospects for selling off all or part of itself, and concluded that at this point pulling off either would be a nightmare. “Any deal for [the] company is highly complex in our view, requiring simultaneous management of a declining business, as well significant restructuring, and as such an acquirer maybe be best advised to wait for [the company] to shrink meaningfully before making any potential move,” Garcha theorized, adding that he’s not sure there’s anyone out there who could turn RIM into a winning play.
“A break up is possible,” he said. “[But] we question the quality of the underlying patent portfolio and also believe that converting RIM’s existing network operations center for other OS platforms may require a high level of effort for minimal functionality improvement.”
That might be so. Thing is, RIM has a user base of about 78 million. And that has to be attractive to companies that don’t have the time or inclination to build their own smartphone business, but are looking to be a player in the space. But the risks are significant. There would clearly be a bevy of platform and network operations issues to be dealt with, as Garcha noted. And beyond that, the stink of Hewlett Packard’s $1.2 billion acquisition of Palm still hangs heavy in the air. Who in their right mind would want to risk reprising that?
What happens in the meantime? Here’s Garcha again: “We believe that a combination of the late arrival of BB10 devices, as well as a fiercely competitive environment, hinders RIM’s ability to turnaround its handset business and estimate its global smartphone share declining to 2.5 percent in 2013.”
(Image courtesy of Estancia Beef)