For the last 24 hours or so, rumors that Microsoft Corp. (NASDAQ: MSFT) may be looking to place a bid for Research In Motion, Ltd. (NASDAQ: RIMM) have been floating to the top of the M&A bowl. It's easy to note that rumors about RIM happen every week, but what makes this one so different? Many, many things.
Microsoft's recent attention to making its Windows Mobile platform entrenched into the market for handheld Smartphones continues to indicate how highly the company places mobile technology in its future growth strategy. By now, it's pretty obvious that companies like Motorola, Inc. (NYSE: MOT), Microsoft and Google, Inc. (NASDAQ: GOOG) all believe that the future of the internet is in the mobile customer's hands. Yes, we'll always have wireless-enabled laptop computers, but for those growing masses who want the office in their pocket, small Smartphones and like devices are just now beginning to see widespread popularity. It will blossom into a huge market from here.
Unless the price is just too high, Microsoft's acquisition of the best-known name in mobile computing would allow it to gain a very loyal customer base almost instantly, but the company could not just dump RIM's exclusive software and email "push" capability in favor of its own. Both RIM and Microsoft now have systems to automatically push received email to customers in the mobile field in real-time. They are direct competitors.
By buying its largest competitor in this space, Microsoft would own the market for Smartphone-based applications and push email, ahead of European-based Symbian. Microsoft's only problem: RIM's market cap is nearly $47 billion. But with rumors fueling Google's entry into the wireless space in full force soon, Microsoft may again be forced to act in the endless arm wrestling with the internet search giant.
Can Microsoft (MSFT) afford not to acquire RIM (RIMM)?
Recent Posts
- Investors pressure private equity funds to cut fees (7/03/2009)
- Will an IPO bring more transparency to KKR? (7/02/2009)
- Will FDIC's new rules for buying failed banks deter private-equity investors (7/01/2009)
- Blackstone anticipates recovery in Europe (6/30/2009)
- Carlyle, KKR, JC Flowers and others eye Nan Shan Life (6/29/2009)
BloggingBuyouts is provided for informational purposes only. Nothing on the service is intended to provide personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. You are solely responsible for any investment decisions that you make. The contributors who provide the content of BloggingBuyouts may, from time to time, hold positions in the securities discussed at the time of writing and they may trade for their own accounts. Such holdings will be disclosed at the time of writing. By using the site, you agree to abide to BloggingBuyouts' Terms of Use.
Reader Comments (Page 1 of 1)
9-01-2007 @ 5:45PM
Sergei Marescaux said...
This deal would push Symbian out and literally destroy Palm. If MSFT doesn't act know, someone else will http://www.newsvisual.com/newsvisual/2007/08/rim-and-microso.html
9-06-2007 @ 11:57AM
bill said...
WOULD ANYONE BUY RIM for $83bn in CASH??? Longs were saying MSFT is buying RIM at buyout prices ranging from $100 to $150/sh??? CASH no way. A CASH purchase, at the current price, would amount to $83.7 bn (558ml shs o/s X $150/). That figure does not make any sense. RIM is company with Sales of $3.5bn, Total Assets of $3bn, Stk hldrs Eq of $2.5bn, increasing some, but in no way is worth that kind of $. At an $83 bn valuation, it would be valued at over 24 annual sales. Sale are increasing some and even at a lower buyout price, @ $100/sh it would still amount to $56bn
MSFT does not have that kind of cash, and if they did would not use it to purchase RIM. No one would finance that type of purchase- little earnings, small sales, little loan security. Bill Gates could not even guarantee the loan, he’s only worth $50bn.
MSFT could purchase a smaller interest in RIM, a 10% interest would still cost over $5 bn, What would they get for the $5bn? 10% of the profit = $72million, 10% of sales = $350ml. MSFT could invest that $5 bn at 6% and earn $300ml.
Financially, consider the below points-,
RIMM-Aug 31, 07
Stock price-$85.41
Market Valuation..... $48 bn
Sales--------------------$3.5 bn
Valued at 13 times annual sales
Profit-------------------$725ml
P/E---------------------- 67
Total Assets.............$3bn
Stockhldrs Equity.....$2.5bn
# of share o/s............558 million
Microsoft-
Stock Price $28.70
Market Valuation.......$269bn
Sales...........................$51bn
Valued at 5.2 times annual sales
Profit............................$14bn
P/E.................................20
1. RIMM’s Market Valuation is $48 billion, a buyer would have to pay a premium to buy RIMM.
2. MSFT has about $23bn in Cash & S. Term Investments, included in total current assets of $40bn.
3. MSFT has $24 bn in Current Liabilities, no Long Term Debt.
4. MSFT cannot afford to pay cash to buy RIMM
5. Would or could MSFT borrow $60-80bn to buy RIMM, pay 6% interest, that would amount to about $3.6 bn/yr, as much as RIMM’s Current Sales and almost 5 times higher than RIMM’s profit.
6. Would MSFT want a liability of $60bn+ on their balance sheet? Now they have very little in the way of liabilities and no LT Liab.
7. Would MSFT pay over $60bn for RIM for $2.5-$3bn in Assets, $3.5 bn in Sales, $725ml in Profit?
8. Would MSFT issue their stock to RIMM shareholders, that would have to be approved by current MSFT S/Hs and cause substantial dilution. Would MSFT S/H approve that type of an overvalued acquisition?
9, Would RIMM shareholders want to trade their RIM shares for MSFT shares, (they would not get cash)?