By Andrew Willis
Research in Motion (RIMM) built an enviable $38 billion franchise over the past 20 years without resorting to a single major takeover.
But in the unforgiving tech sector, no one can rest on their laurels. As RIM fights a losing battle with Apple (AAPL) for market share, and contemplates Microsoft’s (MSFT) planned push into smart phones, there’s a school of thought that says the BlackBerry maker must break with its conservative past, and make a $1 billion bid for troubled rival Palm (PALM).
After 11 straight quarters of red ink and a steady loss of relevance, there are numerous reports that Palm is more than willing to listen to takeover offers. When this chatter began, Asian tech plays HTC Corp. and Lenovo Group (OTC:LNVGY) were mentioned as the likely buyers - two investment bankers are alleged to have been hired to run an auction. Yesterday, sources at global investment banks said the only potential bidder to show serious interest in Palm was RIM.
The logic for taking out Palm goes like this: RIM is plagued by software bugs in its operating system, and needs to broaden the range of products its offer to consumer and business clients. Critics say the BlackBerry needs to feature more applications and better video capabilities to keep pace with iPhone and other gadgets.
Buying Palm, according to some tech experts, would bring a superior software platform known as WebOS under the Research In Motion roof, and better position the Canadian company with clients as it rolls out the next generation of mobile devices.
Financially, RIM could take out Palm without blinking. The Waterloo, Ont.-based company holds $1.6 billion (U.S.) in cash and no debt. Palm’s market capitalization is just $823 million. Financiers and analysts who deal with both companies say the cultures have much in common, though obviously RIM would rule the roost.
Elevation Partners, the Bono-backed private equity firm that’s made a massive bet on Palm, is seen by analysts as a willing seller of this stock if it can get anything near its estimated purchase price of $6 a share. Yesterday on Nasdaq, Palm closed at $4.82 a share.
But do RIM’s brass feel the need to do a deal?
RIM staged its annual investor conference yesterday, and if co-CEO Jim Ballsillie was feeling vulnerable, he sure didn’t show it to the Street.
RIM’s message to investors and analysts was simple: BlackBerry will be upgraded to ensure telecom companies of all stripes had a superior product to offer clients, in a world where bandwidth is at a premium. Genuity Capital Markets analyst Deepak Chopra took in the show and said in a note to clients: “If anything, it appears RIM is doubling down on its historical strategy that the carriers are important and will remain important.”
Mr. Ballsillie, never lacking for confidence, did “appear to acknowledge the gap between RIM and other platforms on quantity of applications” said Mr. Chopka, a shortfall that the analyst said Mr. Ballsillie traced to a “focus on quality.”
If RIM is about to announce a transformational deal with Palm, it would be logical for Mr. Ballsillie and his colleagues to set the table with investors at yesterday’s briefing. The co-CEO might point out a few chinks in Blackberry’s armour, and explain how these flaws will soon be fixed to better take the fight to Apple.
No such weakness was revealed. In fact, there were tech analysts in the crown yesterday who came away from Mr. Ballsillie’s presentation thinking any talk of a Palm deal is nonsense. One RIM watcher, whose company does not allow him to be named, pointed out that the Canadian purchased a perfectly decent operating system for future devices in early April for an estimated $200 million, when it bought a small player named QNX Software.
Mr. Ballsillie deserves all sorts of credit for transforming a tech start up, with just one wireless product, into a global market leader. (Why this deft strategic touch deserts the RIM veteran when it comes to buying hockey teams remains a mystery.) Judging from the bravado on display at yesterday’s investor conference, RIM’s co-CEO can think of better uses for a $1 billion than buying Palm.
But if Mr. Ballsillie and the RIM board see buying a once powerful, now humbled rival as the best way to expand their enviable position as a supplier of deeply addictive wireless devices, then there’s little in the way of doing a deal for Palm.