Cisco's Acquisition Of BlackBerry: To Be Or Not To Be?

| About: BlackBerry Ltd. (BB)
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BlackBerry (BBRY) recently announced that the company was exploring some strategic options to bail it out of its current moribund financial state. The strategic options include joint ventures where possible, partnerships, and outright sale of the company. Indeed, those who have been following the financial reports of BlackBerry since a few years ago knew this was coming. Shortly after the announcement, speculations were rife that some giant tech companies like Google (NASDAQ:GOOG), Cisco (NASDAQ:CSCO) and SAP (NYSE:SAP) are warming up to either purchase BlackBerry in parts or outright or salvage its declining fortunes via possible joint venture agreements in line with the options laid bare by BlackBerry. While I wish BlackBerry well and hope that it doesn't come to an outright sale, I think the thought of a mutually beneficial relationship existing between either of Google, Cisco or SAP and Blackberry isn't a bad one.

Now, if Cisco does decide to buy BlackBerry in line with the speculations because Cisco is already a giant in the enterprise space, would that decision be right for Cisco at this time? Does Cisco have the resources to buy BlackBerry? Will the acquisition of BlackBerry strategically improve the financial fortunes of Cisco at all? We will attempt to answer these questions here and, thereafter state the possible outcome for BlackBerry if Cisco decides to purchase the company.

Does Cisco have the resources to buy BlackBerry?

For those not familiar with Cisco, the company is a major producer and marketer of Internet Protocol-based equipment - especially switches and routers - that are commonly used by companies and professionals in internet networking industry for transmitting data and voice messages across internet networks. Currently, the size of the global networking equipment industry is worth about $50 billion in annual spending and Cisco plays a prominent role in this industry. That said; financials won't be a hindrance to Cisco if the company chooses to purchase BlackBerry because the company is worth more than $125 billion in market value and it has a cash balance of about $50 billion in the bank though a debt valued at about $16 billion is also on its balance sheet.

Looking at Cisco's antecedents on acquisitions, acquiring BlackBerry won't be out of place for this giant tech company. To date, Cisco has acquired about 140 companies it considered strategic to its business drive and its passion to maintain dominance in its niche area.

Will the acquisition of BlackBerry strategically improve the fortunes of Cisco?

Though BlackBerry's stock has suffered a massive decline because its quarterly sales have declined by about 45%, there is nevertheless a fortune beneath the surface of BlackBerry. There might be some value to the assets of this company that has one time been a giant producer and marketer of high-end mobile devices worldwide. The handset division of BlackBerry might have lost its market share but its messenger division, which is a messaging service that BlackBerry uses to integrate customers, businesses, and advertisers and it's a rallying point where businesses and individuals target one another, could still generate over $1 billion in revenue for Cisco at the initial stage. In addition, BlackBerry's IP portfolio is worth about $3 billion apart from its enterprise division. The hardware section of BlackBerry is worth about $2 billion and all these assets might worth the investment of Cisco if the company initiate acquisition process.

Moreover, should the acquisition process take place, BlackBerry could rekindle Cisco's passion for producing smart devices. Remember that Cisco showed strong interest in producing smart devices when it launched its Cius Tablet last year but the dream didn't last long because the company killed off the investment within a year with the explanation that customers allowed their employees to have strong affinity towards other devices and integrate them into the network. The Cius Tablet was an Android-based smart device created to make business collaboration easier. In addition, since Cisco is already a market leader in security technology, the patents and security technology of BlackBerry might be appealing to Cisco to enable the company improve its dominance in that sector with the synergy of the technologies of both companies.

Possible outcome for BlackBerry if Cisco decides to purchase the company

If Cisco decides to purchase BlackBerry, it is in doubt if the transaction will be a win-win scenario for BlackBerry because the company may be restricted to the enterprise sphere if Cisco chooses not to explore the potentials in its smart devices division.

Is BlackBerry stock a buy now?

For investors who might be interested in buying BlackBerry stock now because of the rumored acquisition, that might be profitable if the process is initiated and concluded but if not, your investment may depreciate as the stock may lose value further in the eventuality that Cisco isn't buying it nor is any other company in the short term.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.