RIM's Value Plummets, Leaving Acquisition Possible for 50% Premium

Strategic Insights -

Research In Motion Ltd.'s (RIM) decline has been so drastic that a potential acquirer could purchase the BlackBerry maker at a 50% premium and still pay a lower multiple than any other communication equipment provider. RIM, which was once worth $83 billion, has fallen more than 80% from its record three years ago, largely due to the rise of Apple Inc.'s iPhone and Google Inc.'s Android platform. The Waterloo-based company has seen its stock price drop significantly, closing Tuesday on the Toronto Stock Exchange at $27.74 a share, or about 4.7 times earnings next year.

Key Takeaways:

  • RIM's market capitalization has declined by more than 80% from its record three years ago, with a loss of almost $70 billion in value since peaking in June 2008.
  • The company's quarterly sales may drop for the first time in nine years, with a potential drop-off in sales due to the aging models of BlackBerry.
  • RIM still holds a dominant market share among corporate clients, offers greater security with its own email servers, and generates more free cash flow versus its market value than any of its competitors.
  • Potential acquirers, including Microsoft Corp. and Dell Inc., could purchase RIM for a lower multiple than any other communication equipment provider.
  • RIM's decline has been significant, with the stock price dropping to $27.74 a share, or about 4.7 times earnings next year, compared to HTC Corp.'s multiple of 9 times profit and Apple's multiple of 11 times earnings next year.
  • RIM's market share in North America has declined to 13% from 54% in a span of about two years.
  • The company has lost out to cheaper Android phones in markets such as Latin America, Asia, and Europe, threatening the popularity of RIM's less expensive BlackBerry models.

Statistics:

  • RIM's market capitalization has fallen from $83 billion to $13.6 billion, a decline of almost 84%.
  • RIM has lost almost $70 billion in value since peaking in June 2008.
  • The company's free cash flow, or cash from operations after capital expenses, was $2.87 billion in the past 12 months, or 21% of its market value.
  • RIM's market share in North America has declined to 13% from 54% in a span of about two years.
  • The company has seen a decline of 55% in its stock price this year alone.

Sources:

  • Bloomberg News
  • Research In Motion Ltd.
  • Apple Inc.
  • Google Inc.
  • BMO Harris Private Banking
  • Sanford C. Bernstein & Co.
  • YCMNet Advisors
  • Nomura Holdings Inc.
  • Waterloo Region Record