By Richard Saintvilus
I've said before and I'll say it again, Dell (DELL) should buy BlackBerry (BBRY) - it's a match made in heaven. Given the success of BlackBerry's new BB10 phones, which outsold the Street's estimates, Dell needs to shift focus and rethink its strategies. Instead of going "underground," management should make a bold move to remind Wall Street that not only does Dell still have the competitive spirit, but it is determined to produce the growth that Wall Street craves.
Time to change directions
Dell has lost more than 40% of its value over the past five years. As mobile devices have grown in popularity, the company has seen its core business eaten alive. What's more, Microsoft (MSFT), Dell's proud OEM partner, has now entered hardware with its Surface tablet, which suggests that Microsoft no longer trusts its hardware partners.
With PC deaths no longer just "imminent" and are actually real, Dell seems to feel that going private will solve its problem. Michael Dell and Silver Lake Partners believe they can harvest more value as a private company. But it won't work. Instead doing this will only prolong the agony. Margins and leverage are not going to suddenly get better just by simply voiding your stock ticker.
However, all is not lost. Although Dell has failed to adapt to the new age of mobility, the company is one acquisition away from making lost ground, and BlackBerry should be the candidate. This would be the radical "game-changing" move that Dell needs to put itself back on the map and become relevant in mobile.
There synergies can't be ignored
This suggestion is not an endorsement on BlackBerry to the extent that I feel BlackBerry is a legitimate threat to Apple (AAPL) or Samsung (GM:SSNLF). Rather, given Dell's strong brand and enterprise position, Dell should be able to leverage advantages that BlackBerry has not realized. While BlackBerry has done a decent job of getting back from "near death," there is a ceiling to how far it can go. A name change is not enough to erase mistakes of the past.
I've said this recently, BlackBerry, although much improved, still does not know what it wants to be. It's hard to be encouraged when the company posted $2.7 billion in revenue, which is down 36% year over year from $4.2 billion. It's a glaring decline. But I'm willing to give BlackBerry credit for having (at least) slowed the pace on a sequential basis. I think this is something that Dell can improve upon.
Still, the fact that there were 3 million BlackBerry service cancellations was disappointing. This is the second consecutive quarter during which the company saw subscriber defections after peaking at 80 million last summer. The service business, which has been BlackBerry's highest margin segment, has helped off-set hardware revenue. But now it is eroding.
Dell, however, which has a strong server business, can leverage this to stop the bleeding. Along with BlackBerry's Mobile Fusion, Dell will be able to transform itself more in the realm of IBM (IBM). At the same time, Dell will remove its dependency from Microsoft, which has seen weak adoption of its Windows 8 operating systems. This was once seen as a growth catalyst not only for Dell, but also Hewlett-Packard (HPQ).
How can it work?
Given BlackBerry's $7.5 billion market cap and Dell's $13 billion is cash, this is a deal that can happen tomorrow. It would only cost Dell $9 billion, or 20% above BlackBerry's recent closing price of $14.70. Would BlackBerry investors accept $17.65 per share plus shares of Dell? This would be a hard deal to pass up.
Granted, Dell's bid to go private may present some challenges. But again, if the company is truly sincere about doing what is best for shareholders, Dell must consider this. Meanwhile, BlackBerry has demonstrated that it can still bring in the cash flow, including $2.3 billion in the recent quarter. Will Dell do it?
Here's making sense
Whether or not Dell sees fit to make a call to Canada, I still put BlackBerry at the top of my list of acquisition candidates for 2013. It would be a shame for BBRY to go to another (and possibly less synergy-friendly) company.
Here's another interesting twist; Microsoft, which recently made a $2 billion investment in Dell, would suddenly become an ally to BlackBerry. If Dell were to buy BlackBerry, how long would it be before the three companies combine their energies to enact revenge on Apple?