Is Research In Motion Ready For A Takeover?

Jul. 1.12 | About: BlackBerry Ltd. (BBRY)

Research in Motion (RIMM) fell 19.06% on Friday to end at $7.39. In stark contrast, the large decline occurred on a day in which the overall market climbed over 2%. The knee-jerk reaction was set off by the company's announcement to once again push back the launch of the highly anticipated BlackBerry 10. The operating system is largely merited to be the product launch on which RIMM appears to be pinning its recovery. With the new release now likely to occur in the first quarter of 2013 at the earliest, talks of whether the company can survive on its own has also reinvigorated conversation over another familiar concept altogether: Is Research in Motion ready to be taken over?

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Now trading at $3.81 billion, Research in Motion carries a price-to-book ratio of 0.47, a price-to-sales ratio of 0.26, and maintains an operating cash flow of $2.91 billion. The company has been on the rumor block for some time and even reportedly turned down a takeover attempt by Amazon.com (NASDAQ:AMZN) back in December 2011, when the company carried a market value of over $6 billion. At the time, Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK) were also believed to be pondering a joint bid for the company. It is possible that Amazon, Microsoft, and Nokia could be ready to come back with another attempt in light of the deteriorating situation.

Yet a takeover might not be nearly as simple as an accepted offer. Should the company fall under the terms of the Investment Canada Act, which requires that any foreign takeover worth C$330 million be reviewed by the minister of Industry, the decision could hinder the process. With the Pentagon also operating as the company's largest customer, additional concerns exist for whether or not the U.S. Government will have a say given the level of integration the company has with regard to existing communications security.

Nevertheless, the company could be taking the proactive step of preparing for a partial takeover according to recent rumors. According to the Bloomberg article, the Sunday Times reports that Research in Motion is considering selling its handset-manufacturing unit or breaking it off into a separate listed company. Additionally, the company is supposedly considering a partial sale of itself to a larger company. Yet no official announcement was made and the situation remains unclear.

What is becoming clear, however, is that the situation at Research in Motion is increasingly dire. In late May, the company reported that it hired JPMorgan Securities and RBC Capital Markets to assist in developing "various financial strategies," which likely included the possibility of selling the company outright. The company has lost over 68% of its market value over the last year, and shareholders seem more than willing to discount it further. However, with such a vast discount to book value, RIMM might soon be finding a share price bottom in light of possible takeover scenarios and the inherent value still retained by the company.

Disclosure: I am long RIMM.