Reasons to Doubt Research In Motion's M&A Prospects

NEW YORK (TheStreet) -- As Research In Motion (RIMM) concludes what some speculate may be its last annual meeting with shareholders, there's still a big divergence in what people see as the end game -- and exit value -- for the BlackBerry-maker and its shareholders.

Research In Motion's management is counting on existing handset sales and enterprise revenue to hold together the Canadian smartphone maker through 2012 -- with the prospect that a delayed BlackBerry 10 operating system can revive its earnings and growth prospects in 2013. The financial situation is critical: the company confirmed a report on Tuesday that it was trying to sell one of its two corporate jets as part of a plan to save $1 billion.

Recently, RIM chief executive Thorstein Heins reaffirmed the company's plan to launch the BlackBerry 10 in 2013, while rejecting the notion that amid a 95% fall in the company's shares from its 2008 highs, the company is in a 'death spiral.'

Nevertheless, Research In Motion has also hired bankers to pursue strategic alternatives, which many believe could come from a Microsoft (MSFT) or HTC acquisition or a private equity buyout as the company's sub-$4 billion market cap makes it digestible.

In fact, after its worst quarterly loss as a public company in May and another delay to its BlackBerry 10 operating system that's pushed the launch past the 2012 holiday season, many now wonder whether the best hope for a recovery in Research In Motion's shares, which have fallen nearly 50% in 2012, will come from a strategic or private equity acquirer.

At the Research In Motion annual meeting Tuesday, the issue of potential M&A was not publicly discussed. RIM reaffirmed its BlackBerry 10 rollout and projected it would launch in January; however, shares tumbled over 5% in afternoon trading to $7.21, on a negative reaction to the meeting.

RIM M&A bulls don't see much value in the company's BlackBerry handset, still a staple of the corporate world and a device which propelled the company to be among Canada's biggest corporations by market cap just a few years ago. Instead, those counting on M&A think that the sum of the company's patent portfolio, its cash assets and enterprise software business are worth than the company's current sub-$8 share price.

"If the stock is selling at working capital, if you look at its patents and its embedded base of customers, you have something is in the range of $20," says Donald Yacktman, the president and co-CIO of money manager Yacktman Asset Management, in an early July interview. While Yacktman believes that the company's patents and its roughly 18 million business subscriptions have value, he considers those assets a melting "ice cube" because options are becoming more limited.

Yacktman is Research In Motion's seventh largest shareholder, with nearly 10 million shares as of March 31, according to Securities and Exchange Commission filings. Research In Motion is not among the $17 billion-plus money manager's 25 largest holdings, according to Bloomberg data.

While few analysts expect that Research In Motion could currently fetch a buyout price in the $20 range, they do echo Yacktman's point that expediency will be key to any prospective deal.

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