Rumored Icahn Stake in RIM Fuels Takeover, Asset Sale Speculation

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RIMM: Research In Motion logo
RIMM
Research In Motion

Speculation that activist investor Carl Icahn has taken a stake in Research in Motion (NASDAQ:RIMM) caused shares to jump yesterday. If pursued, Icahn could  push for a board seat and press the company to consider a sale. [1] RIM continues to struggle in the smartphone and tablet market due to increasing competitive pressures from Apple (NASDAQ:AAPL) and Samsung, and as a result, shareholders are increasingly frustrated with management and expecting major changes. Our $26 price estimate for RIM stock is about 15% above the market price.

Shareholder Pressure Increasing on RIM

Earlier this month, another activist shareholder Jaguar Financial Corp. urged RIM to consider for a sale of the company or a sale of its patents in order to maximize shareholder value (see RIM Rallies as Activist Investor and Upgrades Bring Life to Stock). Now, if the report on Icahn buying a stake in RIM is true, the pressure on RIM to make radical changes would increase.

Icahn is an influential personality and did a similar thing with Motorola by pushing for a board seat in the company, pressuring the company to split into two. The company split into Motorola Mobility (NYSE:MMI) and Motorola Solutions (NYSE:MSI) in January this year. He then urged the company to consider splitting off its patent portfolio in order to cash in on surging interest in wireless technology (see Mobile Weekly Notes: Motorola Mobility & Icahn, Apple and Nokia Earnings). Eventually, Motorola Mobility agreed to sell itself to Google (NASDAQ:GOOG) last month for a valuation of $12.5 billion.

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Still Shareholders Face Several Obstacles

Despite increasing pressure, we believe shareholders face many difficulties, and it will not be easy for them to achieve the desired result. Firstly, management’s willingness to consider a sale will be one of the most important factors as the two co-CEOs of RIM own 11% of the company shares. [2] Secondly, a lack of a strategic fit for potential buyers and a comparatively weaker patent portfolio are some of the other hindrances that shareholders might face, something we discussed in our earlier note titled Why RIM Makes a Poor Acquisition Target.

Talking about the patent portfolio, investors were disappointed last week when Jeffries suggested to clients that RIM’s wireless patents have a maximum liquidation value of only about $2.5 billion, or $1 billion if it continues to make smartphones. See our note RIM Takes Further Pounding as Doubts on Patent Portfolio’s Value Surface.

See our complete analysis for RIM stock here

Notes:
  1. RIM shares jump on Icahn stake talk, BGC Partners tech analyst Colin Gillis told Reuters, September 27th, 2011 []
  2. The two co-CEOs own 11 percent of the stock, Bloomberg, September 28th, 2011 []