Facebook (NASDAQ:FB) is speculated to generate a total value of about $96 billion in its IPO, and plans to raise nearly $11 billion in cash. The main thesis of this article is to provoke the thought that if FB is willing to purchase Instagram for a mere $1 billion, a company which has made no money thus far, why not consider buying Research in Motion (RIMM) at today's bargain basement prices?
At the time of writing, RIMM can be technically purchased for only $6.3 billion (market cap). It is common knowledge that RIMM has had some rough times lately, but RIMM nonetheless posted a net profit of over $1 billion last year. In short, and in comparison if you juxtapose the two deals, a FB purchase of RIMM on the surface looks to be a good deal.
To put this into further perspective, RIMM`s current market cap is just 6 times that of the purchase price of Instagram. Moreover, since RIMM is currently selling at less than its tangible book value, there is no better time for FB to look at a potential purchase of RIMM. On the other side of the equation, perhaps an FB takeover of RIMM will give RIMM the much needed jolt of new blood, different pace, and especially help in the marketing department.
FB would have to assume the debt obligations of RIMM. However in RIMM's case there are no debt obligations. Some additional positive factors to the deal are cash in the bank (over $1.5 billion), the QNX operating system which is already in so many cars (for example, BMWs already have FB integration), existing SAAS (Fusion BES/BIS), and existing global network infrastructure. But most important, as demonstrated lately in the media, with all the patent lawsuits floating back and forth, is RIMM's chest of patents.
Furthermore, FB could diversify itself from a cloud-only social networking/advertising company, to opening the company up to the smartphone market as a hardware and services vendor, which continues to grow. The FB product is used extensively on Blackberry devices already. This is not such a far out concept, consider Google's proposed purchase of Motorola Mobility for $12.5 billion. Google (NASDAQ:GOOG) has tried to go head to head with FB with its Google Plus, and even though it has its own operating system for smartphones (Android), it is looking to acquire Motorola Mobility (MMI) for its patents and a potential hardware play. FB acquiring RIMM would potentially mimic the GOOG/MMI deal.
Additional product lines such as smart TVs are coming down the pipe, and are already sporting FB integration. A synergy that could exist is to have the BB act as the remote control, much like it already does with the Playbook. Apple (NASDAQ:AAPL) already has a concept of the iPhone as the remote control in the household tech ecosystem.
Speculation currently exists where some investors are wondering if FB will be able to continue its revenue growth. One way to ensure this continued growth, and to furthermore help smooth out the potential revenue volatility, is for FB to purchase a mature company like RIMM. After all RIMM does make money, has a large subscriber base, and is growing its demand in the emerging markets. The synergies that could exist between FB and RIMM are numerous, and only a few potential possibilities have been pointed out here.
FB does run the risk of being today's popular social networking site and tomorrow's not so much. One could laugh at a bold statement like this, but if we were to hop into a time machine and go back 50 years would people not laugh for saying Kodak might not be around 50 years later? It can happen as markets, technology, and consumer preferences do change. Nobody can say for certain that FB will be around 50 years from now in its current state. Furthermore nobody knows with complete certainty how social networking will evolve between now and 50 years in the future. Because of this fact, it is difficult to consider FB as an investment for the long-term until it shows more consistency, and proves itself over time. Look at My Space (NASDAQ:NWS) for example, and the many other cloud companies that have come and gone already. Yahoo (NASDAQ:YHOO) was once big time but now struggles, and is now suing FB over potential patent infrigement. Other such web companies have come and gone over time, such as the Webcrawler or Dogpile search engines.
An analogy could be used where FB is the Coke (NYSE:KO) of the social networking market. However KO over the years has branched into non-beverage products. This diversification has only proven to be good business sense for KO. FB could consider doing the same with buying a company like RIMM. It is a complementary business decision, one that could be strategic if approached with an open mind. It goes against what the mainstream media consensus is, but there has been opportunity in the past with contrarian pursuits. After all Amazon (NASDAQ:AMZN) already considered a purchase of RIMM. Even with a premium added to today's price for RIMM which FB would have to consider, it is not like with a projected market value of $96 billion, FB can't afford to leverage some other buyout techniques such as a part stock offering.
In conclusion, when you receive a $96 billion valuation in an IPO, FB could go shopping for a severely undervalued company such as RIMM, to diversify the FB revenue stream, pick up some patents, and look for further synergies in the related technology industry. Especially when FB is willing to pay $1 billion dollars for a yet to profit photo sharing application.
Disclosure: I am long RIMM.