BlackBerry (NASDAQ:BBRY) has been in news a lot recently. First the shares rallied strongly after the company's last quarterly earnings report as the company made significant progress in cutting operating costs and raising margins. Most importantly, the company stated it expected to achieve cash flow break-even status earlier than investors expected.
Recently the stock has been going in the opposite direction after a big announcement by Apple (NASDAQ:AAPL) and IBM Corporation (NYSE:IBM) that they were forming a partnership to better serve the corporate market. This triggered worries that the new partnership could be a major hurdle for BlackBerry to develop into a major enterprise software player.
BlackBerry's CEO, who has done a wonderful job helping turn around the company's fortunes in less than eight months on the job, came out last week stating BlackBerry was talking with other tech companies about possible partnerships.
My personal opinion is that Cisco Systems (NASDAQ:CSCO) should be one of those firms that BlackBerry should have at that top off their list to speak with and Cisco should be considering BlackBerry as a possible acquisition as well. A possible combination would make sense for myriad reasons:
- Both companies are currently focused on the enterprise. Cisco has always been primarily an enterprise player after many forays into the consumer side have failed miserably. BlackBerry has recently focused on this space after surrendering their early lead in smartphones.
- Cisco already has a huge corporate focused sales force that could easily put BlackBerry's enterprise offerings within its product mix. This combination would lead to significant economies of scale and synergies - AKA, layoffs.
- Both companies are becoming more and more focused on network security and becoming a player in the theme of the "internet of things".
- John Chen, BlackBerry's CEO, is probably too old to be considered as an eventual replacement for John Chambers. However, he would be a valuable C-suite executive pick up for Cisco especially on the operational side.
- Cisco has tens of billions of net cash on the books, most of it trapped overseas. Even with a significant premium (~50%) BlackBerry could be had for approximately ~$6 billion. A bite sized acquisition. Given BlackBerry's Canadian headquarters, Cisco should be able to use its overseas cash without the tax implications of acquiring an American firm using those trapped overseas assets.
Although the combination seems logical to me, I have not seen the possibility discussed much or at all. I thought I would throw it out for food for thought. Although an acquisition might seem far-fetched, it does seem like a logical combination. Regardless of whether BlackBerry ties up with Cisco through a technology partnership or as an acquisition; I continue to rank BlackBerry as a small speculative opportunity as it seems the company is in the midst of a considerable turnaround which I articulated recently. SPECULATIVE BUY
Disclosure: The author is long BBRY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.