Would Cisco buy RIM?
business.financialpost.com
By Jonathan Ratner -- October 20, 2010
While Microsoft Corp. always seems to come up as the logical buyer whenever talk of a takeover of Research In Motion Ltd. surfaces, UBS says it would make more sense for Cisco Systems Inc. to be the purchaser.
In addition to the fact that a Microsoft-RIM deal would make Microsoft a competitor to its customers, UBS analysts Phillip Huang and Maynard Um believe synergies between the two companies are low. For example, a merger would still require Microsoft to spend on research and development for two mobile platforms.
However, they do see many synergies between Cisco and RIM, including BlackBerry integration of Flip digital camera technology and TelePresence (both consumer and enterprise).
“There are few other companies that have the cash balance to do a deal of this size and those that do, in our opinion, would have limited synergies relative to Cisco,” the analysts said in a note to clients.
They believe Cisco would be able to integrate its video editing software into RIM’s desktop manager with hooks into Facebook, Twitter and others to offer a more compelling multimedia offering. The analysts also suggested that Cisco could leverage RIM’s Mobile Voice System (allowing employees to get rid of desk-based phones), which would play into its IP Telephony initiative.
Of Cisco’s roughly US$40-billion in cash, approximately US$33-billion of it is offshore. Since RIM is a Canadian company, Cisco would not have to go through the expense of repatriating cash in the event of a takeover.
The analysts consider the likelihood of such a deal to be very low in the near to medium term, particularly because Cisco has previously indicated it is not interested in acquiring a smartphone company. However, the analysts did say further declines in RIM shares would make it a potential takeover target and “a deal would make sense at the right valuation.”
They also noted that headwinds limit the share price upside beyond their US$54 target, but the stock is unlikely to fall below US$40.
While RIM’s consumer business has an estimated revenue run rate three times larger than the enterprise side, its need to invest into its ecosystem to compete against the platforms of tech giants like Microsoft, Applie Inc. and Google Inc. impacts its value. As a result UBS estimates 55% of RIM’s target value comes from enterprise versus 45% from consumer. |
