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Microsoft tipped as acquirer for RIM

Could pay 50% premium and still get a bargain, say analysts, but does the Windows giant really want a handset maker?


Published: 21 June, 2011

READ MORE: M&A | Research In Motion | Microsoft | Handset

Despite all the logic to the contrary, the markets are determined that Microsoft wants to buy itself a handset maker. Nokia was in the frame a few weeks ago, and now a popular rumor about RIM has been resurrected.

Reports of a possible acquisition have been stimulated - like the similar chatter around Nokia - by the fall RIM's market value, which has fallen by more than 80% from its record peak of three years ago. According to Bloomberg data, the BlackBerry maker's current value of US$25.89 a share, or 4.7 times earnings next year, is lower than that of any other communications equipment maker.

The Bloomberg analysts claim that RIM has lost so much value that a buyer could pay a 50% premium and still snap up the Canadian firm for a lower multiple than any other similar company. Dell, and Nokia itself, are also rumored to be interested in RIM, but the keenest focus is on Microsoft. Paul Taylor, chief investment officer at BMO Harris in Toronto, told Bloomberg: "RIM still has meaningful market share in the US and meaningful market share internationally, and RIM has an iconic brand."

All this ignores the fact that for Microsoft to achieve its mobile objectives - a strong position for WP7 and the future Windows 8, and/or the dominant back end platform for a multi-device wireless cloud - it needs a broad spread of partners, not ownership of one handset maker whose appeal would almost inevitably be damaged by the acquisition (a repeat of the purchase of Danger and its cultish Sidekick phone, writ large). RIM's back end and push email systems would have a clear fit for Microsoft, but its devices would only muddy the waters with Nokia - the biggest hope for real scale for WP7 - and for other important partners like HTC.

RIM, like Nokia, is going through a difficult product transition period in which its existing platforms are looking increasingly aged. Also like its Finnish rival, it has suffered a series of recent blows which have hit the share price, including the exit of senior executives, uninspiring sales of key products like the new PlayBook, and a disappointing second quarter forecast.

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