Daniel Miller
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RIM has faced a significant shrinking of market share over the last year as illustrated in the following pictures: http://www.onlinemarketing-trends.com/2012/03/rims-q4-106-million-smartphonesnot.html
RIM’s stock price has followed suit: http://finance.yahoo.com/echarts?s=RIM+Interactive#chart1:symbol=RIM;range=1y;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
The market is currently valuing RIM at extremely low historical multiples based on projections that RIM will continue its market share decline.
Lenovo has the ability to purchase RIM on the cheap and should for the following reasons:
1) Lenovo has faced similar issues competing against Apple in the PC space but unlike RIM it has been able to compete successfully. Part of this likely has to do with a better and more innovative management team. RIM would gain significantly from having a better leadership as the two co-founders stepped down at the end of 2011.
2) Lenovo and RIM have the same business customers. Their products are designed for durability and security. Most sales are B2B rather than B2C which is a better business to be in. They can combine sales structures and realize massive cost synergies.
3) Lenovo and RIM can focus on technology which allows for better integration with each other, thereby locking in business customers further and allowing pricing discount for companies that purchase both products. Two such examples I could think of would be allowing better wireless tethering between the Thinkpad and the Blackberry and offering users the ability to use apps they purchase on both platforms. I have faith that Lenovo management would be able to create more creative and productive ideas.
4) Purchasing RIM would allow Lenovo to expand its mobile technology unit and allow them to make use of RIM's mobile patents, including push technology.
5) Lenovo already has a competitive phone for the consumer market and can discontinue the unpopular RIM phones that are targeted at the consumer market. It can still keep the more popular, high end blackberry phones targeted at the business community.
6) Moving RIM's headquarters to China would undoubtedly decrease SG&A costs. Currently RIM has over 17,500 employees predominantly located in Canada and the US. They should be able to realize synergies by combining the workforce and moving more towards China based employees.
7) They can purchase RIM at a great price. At a 20% premium to current enterprise value they can purchase RIM for about $2 billion at about 0.35x EV / Sales and 2.0x EV / TTM EBITDA. (HP for example acquired PALM for 1.1x EV / Sales and had negative EBITDA). Analysts have estimated that RIM's patent portfolio of over 2,000 patents could be worth anywhere between $2.5 billion to $10 billion itself. (http://www.cantechletter.com/2011/10/what-are-research-in-motions-patents-worth/) So even in a worst case scenario, Lenovo could auction of the patents it acquires as part of the deal and recoop its purchase price if necessary.
8) At the end of 2011 Lenovo had $4 billion of cash on hand. It could pay for the remaining $3 billion either through stock or additional debt.
