By Renee O'Farrell
According to the Financial Times, the review will include "the possibility of outsourcing device manufacturing or a sale of the company." Thorsten Heins, CEO of the Canadian smart phone maker, said that "both he and the board believed the best strategy for the company was to press ahead with a turnround [sic], but he acknowledged that if as a result of the strategic review it became clear that it would make sense to sell all or part of the company, 'We would consider it.' Heins added, 'I recognise [sic] these are difficult times for our stakeholders and this is likely to continue for the next few quarters.'"
The company is trying to turn things around - it will be introducing a range of lower priced BlackBerry 7 devices sometime in later this month (April 2012) - but its efforts could be a case of "too little too late".
Research in Motion has roughly 75 million users worldwide and 17% of the market, but between service failures and product introductions that went no where, to say nothing of its falling market share, a sale may not be the "main direction" of the company, but it certainly a possibility, especially given its low price.
Research in Motion recently traded at less than $13 a share, which means it is priced at just 0.65 times its book value. Further, interest in the company as a possible takeover target is long standing. Amazon (AMZN), Microsoft (MSFT) and Nokia (NOK) each reportedly considered making a bid for the company earlier this year when the company's share price was $17 a share.
One thing that might save Research in Motion from a sale is the fact that it is a Canadian company. According to the New York Times, the Canadian government "has been increasingly reluctant to let foreign companies buy major domestic corporations." For example, the Canadian government blocked Australian mining company BHP Billiton (BHP) from acquiring Potash Corp (POT) in 2010.
Further, any sale of Research in Motion could face issues depending on the origin of the acquirer. The company's BlackBerry phones are used by the American government. According to the New York Times, "military personnel, law enforcement officers and White House officials rely on BlackBerry devices, making Chinese ownership difficult under the technology control restrictions in the United States." The US government stepped in last year to block the sale of 3Leaf Systems from Huawei Technologies - and that transaction was much smaller than a Research in Motion deal would be and its impact exponentially greater.
All the same, Research in Motion is clutching at straws right now. If not a sale, and if the new product line doesn't take, then there is really only one option left - licensing. The company has some agreements in place with Amazon, specifically with regard to making Amazon's music catalog available to some Blackberry users. There are several other companies interested in such a deal.
Research in Motion itself "had approached Samsung, the world's biggest smart phone seller, and HTC, the biggest seller of Android phones in the US, about licensing its forthcoming handset operating system, now due late in 2012," according to the Guardian. "RIM could also look at licensing out its QNX operating system after the late 2012 launch of BlackBerry 10, which will be the first smartphones using that software, to give handset makers an alternative to Google's Android operating system."
It may all sound pretty bleak, but some money managers see opportunity in Research in Motion. Prem Watsa's Fairfax Financial Holdings Ltd (OTCPK:FRFHF) took on a 5.12% stake in Blackberry maker, according to a filing with the SEC dated January 26, and several hedge fund managers increased their stakes in the company significantly during the fourth quarter.
Ken Griffin's Citadel Investment Group upped its stake in Research in Motion by 75%, while Leon Cooperman's Omega Advisors increased its stake in the company by 106%. Further, both Cliff Asness' AQR Capital Management and Steve Cohen's SAC Capital Advisors more than doubled their stakes in Research in Motion during the fourth quarter.
I like Research in Motion's unique position - its licensing agreements currently in place and its market share - but I'm not convinced that the company's share price won't fall some more before it's all said and done. I recommend investors stay tuned for how the strategy review goes and make a decision about investing in Research in Motion then.
Disclosure: I am long MSFT.