By Katey Stapleton, Benzinga Staff Writer
Reports surfaced last weekend that indicated distressed smartphone distributor Research In Motion Limited (RIMM) would soon be splitting into two businesses. The company's fuddled handset category may be pulled apart from the messaging network and sold off to large-cap tech companies if the rumors prove to be true.
According to Reuters, Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB) could conceivably scoop up the handset portion of Research In Motion's brand. However, the company could choose to take matters in a completely different direction and allow Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) to get in on the sale.
No stranger to controversy and gossip, Research In Motion has had its fair share of struggles over the past few years. Most recently, the company has had to let go of several employees in an effort to save money and restructure its business.
Along with job cuts, the BlackBerry distributor recently hired J.P. Morgan and RBC Capital to review its strategic options, which could explain the possible upcoming divide of the business. With new advisors taking a look at the company's business model, Research In Motion may not be able to afford to remain one complete entity.
Attempting to swat the rumors away, Research In Motion spokesperson Nick Manning commented on the split, stating that the company's top management remains committed to maximizing shareholder value by continuing on a turnaround strategy that will soon result in the launch of new products.
It appears that Manning may be correct, as former company executives insist that the problems dwelling within Research In Motion's financial and business strategy would not be solved by a separation of any sort. One such person stated that CEO Thorsten Heins would like to see the company remain integrated, as well as co-founder and vice-chairman Mike Lazaridis.
Not all interested parties have the same faith in the company that its management does, as Morgan Stanley analysts downgraded Research In Motion yesterday morning to Underweight on the basis that the tech giant is too large for its own good.
"Downgrading to UW as we believe the only way RIM remains a viable entity is at a fraction of its current size, a transformation that erases much of its earnings power. Immediate asset sales or strategic options could unleash ~$15/sh in value but are unlikely leaving a declining BV. PT goes to $7," Morgan Stanley said in Monday's report.
The hits continued to keep on coming, as Morgan Stanley then stated that Research In Motion will likely miss estimates in its second quarter earnings report. The company also maintained that the situation has become so volatile that the launch of BlackBerry 10 is too late to offer any kind of saving grace throughout back-to-school shopping.
Meanwhile, Research In Motion's competition is amusing confident investors and impressing analysts as of late. According to Oppenheimer, Verizon Communications (NYSE:VZ) and AT&T (NYSE:T) have both positioned themselves for profitable fiscal years, as cloud services have finally become a beneficial part of the telecommunications business and network modernization is paying off.
As the smartphone frenzy continues to lure in more subscribers, Research In Motion is strategizing to get a piece of the action. While a company-split may not be what the doctor ordered, fierce opposition from competing companies may force the wireless distributor to take drastic measures in the coming months.
Research In Motion closed Monday at $9.10, down about 37% year-to-date. Conversely, Verizon closed Monday at $43.65, up almost 9% year-to-date, and AT&T closed at $34.95, up around 15.5% year-to-date.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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