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Ayush Singh's  Instablog

Ayush Singh
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Interest in capital markets and investment banking. Like to have a keen watch over various and the trends of prices for stocks mainly for long term investments
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  • Should You Buy BlackBerry On The Hopes Of A Cisco Acquisition?

    Ever since BlackBerry (NASDAQ:BBRY) declared that it is assessing strategic options, the rumors of the company's sale have gathered pace. Big name players like Cisco (NASDAQ:CSCO), SAP, and Google appear to be the first names on the list of potential suitors for BlackBerry. Given the recent struggles of BlackBerry, an acquisition isn't too far-fetched. Of course, nothing has been officially confirmed, but should you buy BlackBerry on the hopes of an acquisition? Let's see if it would make sense for either Google or Cisco to buy BlackBerry.

    What Will BlackBerry offer?

    If you judge only by the fundamentals, then there's no reason to believe that any company will shell out billions of dollars for the acquisition of the crumbling giant. In the previous quarter, BlackBerry reported a massive 45% decline in its quarterly sales and the company's cash balance dropped roughly $500 million to $2.6 billion. The company also posted a net loss of $84 million, which is terrible as compared to the corresponding quarter of the previous year when it posted a profit of $94 million.

    However, if you look past these numbers, BlackBerry has some valuable assets which can benefit its suitors. Apart from the smartphone business, the company also has a big intellectual property portfolio, which is approximately worth $3 billion, a hardware segment which is valued in excess of $2 billion and is heavily involved in the enterprise space.

    In addition to that, the company also has BlackBerry Messenger (BBM), a service which will enable its acquirer to merge its customers, advertisers and business clients; therefore an acquisition does make sense.

    Why should Cisco acquire BlackBerry

    Financially, Cisco is more than capable of buying BlackBerry as the company has roughly $34 billion in net cash balance. With a market cap of more than $124 billion, Cisco is known for acquiring many companies, so Cisco might be able to ward off interest from other suitors if it wishes to acquire BlackBerry.

    Now that the financial aspect is not a problem, let's take a look at the other factors which may motivate Cisco to buy BlackBerry.

    Firstly, many of Cisco's devices run on QNX, a wholly-owned subsidiary of BlackBerry. Therefore, by acquiring BlackBerry, Cisco would gain access to a fully compatible mobile platform-BB OS10-and QNX. Therefore, it's evident that if Cisco acquires BlackBerry, its non-smartphone business segments may add to Cisco's business.

    Secondly, BlackBerry's patents and security technology business may lure Cisco toward buying the company. Like Cisco, BlackBerry is also a major player in the security technology business; hence the synergies of the technologies of both the companies can possibly make Cisco a more prominent player in this growing market.

    Thirdly, the fact that BlackBerry is well-known in the corporate sphere will be a plus point for the firm to re-mold its consumer segment and focus on providing dedicated solutions for the corporate sector.

    Lastly, in the preceding year, Cisco was keen on making a move into the booming smart devices market by introducing the Cius tablet. But, the sales of Cius were a letdown and the company has been shy of entering into this market since then. BlackBerry already has a mobile business segment; therefore acquiring it would give Cisco a clear shot at re-entering into this industry.

    How Will Things pan out for BlackBerry if this deal goes through?

    This deal will definitely help BlackBerry to revive its business, but on the down side, Cisco may decide to shut down BlackBerry's mobile business if it doesn't want to re-enter this business and focus on the other areas, therefore; it's not an ideal win-win situation for BlackBerry as it's quite possible that it will be restricted to the enterprise sphere.

    Should You Buy BlackBerry Right Now?

    All of a sudden, BlackBerry looks like a hot property in the tech world with a number of rumored buyers. Due to the synergies between the existing businesses of Cisco and BlackBerry , it is highly likely that this deal may go through. Also, the fact that BlackBerry is trading at under $8 makes it a good buy as the risk to reward ratio is quite tempting. However, the investors should be very careful about the volume of the shares they buy because if the acquisition isn't successful, BlackBerry's share price may plunge further.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: CSCO, BBRY
    Nov 22 4:34 AM | Link | Comment!
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