Could Microsoft bid for RIM?

CAROLINE GABRIEL

Published: 14 October, 2008

RIM has traditionally seen its stock sustaining a high value - some would say overvalued given the narrowness of its traditional business model and the rising challenge from larger, better funded rivals. But just as the BlackBerry maker sets out to broaden its appeal and move into the general smartphone market, it has also seen its stock collapsing on the back of investor nervousness about the cost of this expansion. This has inevitably sparked talk of possible bids for RIM, with Microsoft emerging as the latest favorite rumor.

Over the years, many companies have been rumored to be interested in RIM - including Nokia and Motorola - but the price has always been seen as prohibitive, especially for device makers that could turn their own R&D capabilities to beating the BlackBerry rather than joining it. But other companies are looking to play a major role in the mobile web market, but without the expertise in mobile devices and the optimization of services for handsets. Such companies might well have their eyes on RIM's brand, channels and experience with server-based push applications, personalization, mobile enterprise technology, developer tools and smartphones. Among these could be Microsoft, which has already acquired a smaller device maker, Danger, maker of the innovative email/web device Sidekick.

Peter Misek, an analyst with Canaccord Adams, has sparked the latest wave of speculation about a Microsoft-RIM tie-up, raising his rating on RIM stock from 'hold' to 'buy' and saying in a research note that "RIM is a massive strategic fit" for Microsoft. He added, as quoted by news agency Reuters: "I'm fairly certain they have a standing offer to buy them at $50 (a share)" - which Reuters' sources calculated would mean a total of $23.6bn in cash and equivalents, plus some equity component, which would allow the transaction to be carried out without resort to troubled credit markets.

Of course, RIM shareholders, with share prices around $140 still fresh in their memories, would be highly resistant to a price around $50, and success would depend in part on how long the investors believe the global stocks collapse will last, and more specifically, how much they are panicking about RIM's medium term prospects and spending commitments.