Over the past year and especially over the past few months, buyout rumors of embattled tech company Research In Motion (RIMM) have run rampant through the media. The often-speculative rumors have single-handedly been responsible for huge movements of the RIM stock price. Investors, management, and the media can all probably agree that they are growing tired of them. It is never good when a stock moves on only conjecture. But at some point will the rumors come true?
As of recently, RIM is talking with investment banks about looking at options for licensing or partnership, but not buyout. Now that management is overtly open to the idea as evidenced by its last earnings call, there are several possible acquirers or partners, for which Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and even Facebook (NASDAQ:FB) have all been named. But will this buyout ever happen, and will they pay a premium for the company?
The ideal time for the RIMM sale was probably sometime last spring or summer, when companies such as Amazon were actually flirting with the idea, and RIMM still had a relatively strong position and future outlook from which to leverage. RIMM looked more like a fallen angel at the time, rather than a now sunken ship with a life-raft (enterprise service) full of the survivors.
Unfortunately Balsillie and Lazaridis were not open to propositions at the time. So what could a sale look like now that new CEO Thorsten Heins has effectively put the company on the market? While "who" speculation can be left to others, the most interesting thing to ponder is the "how" part of the hopefully nascent deal.
While it is surely beaten down, RIMM certainly has some valuable intellectual property and hard tangible assets. However, it is impossible to say how much they are actually worth. The core question is how closely the book value of the company and the sale value of the company will add up. Some have suggested that at the current stock price which has been hovering in the mid- to low-teens, RIMM is surely a great value buy, in expectation that the acquirer will pay a premium. This is certainly a possibility, but by no means a certainty, as there are some liabilities that will no doubt be considered by any potential courter.
The two main liabilities that a potential acquirer might be worrying about, is inventory piling up by the day, and ongoing lawsuits. The inventory is fairly straightforward. However, the lawsuits are another matter. As of RIMM's Q3 filing, it had somewhere in the realm of 30 ongoing lawsuits and just had another hit the news last week. As an outsider, it is impossible to put a price tag on the cost of the lawsuits; they could be completely nominal or highly distressing.
Moreover, we have to remember that RIMM has spent a great deal of time and investment on new products were are expected to be released soon. They could be great successes or a great strategic failure. Not to mention RIMM's future outlook looks quite grim right now, so it does not have the momentum and positivity that would normally be a point of leverage for negotiations. If the sale of the company comes from a point of desperation, it will have to take whatever it can get.
So it is hard to say if potential acquirers would pay a little extra for RIMM. On the one hand it could be seen as cheap intellectual property, but on the other it comes with liabilities and weakness that are not to be ignored. And we have to remember that it might be able to procure substantial licenses deals.
Regardless of price, traders holding short positions should be thinking about when the rumors might come true. The buyout could be happening right now, or maybe never. But as evidenced by the past few months and even more recently, a rumor with even a shred of believability will send the stock upwards.
Those still holding long positions, of course, need to be weighing the possibility that the buyout rumors will never come true or that they will be unfavorable and poorly executed. Either way, if there is a buyout, the "how" part of the deal will be far more important than the "who".
Disclosure: I am short RIMM.