In a recent article for the Rhodes Capital Blog, Sean Farhy outlines an excellent argument in favour of Microsoft's acquisition of Canada's Research in Motion. The price he mentions that would be appropriate is $49 per share, well above today's current price of around $27 and a healthy premium for investors should a deal like this ever materialize. To be sure, if the situation at RIM gets much worse, the management will shop around for a suitor and happily take a fat golden handshake... leaving their shareholders with a wad of cash on hand, or ownership in a stronger combined entity.
"Microsoft (MSFT), like City Hall, is the established bureaucracy and its stakeholders often feel like powerless constituents. Unfortunately for the small investor, the lack of a democracy in a stock proxy only empowers Steve Ballmer and his administration. Mr. Ballmer will play the role of our Mayor, a career politician who has done absolutely nothing for the stock price since he has come into office."
Microsoft sits on almost $50 billion in cash, or $5.78 a share and also pays a dividend of 2.7%. Earnings are expected to be over $20 billion going forward- Mr. Ballmer, surely you can do better than maintaining your failed policy of executing the status quo? The first trial into the smartphone market failed within weeks and the likelihood of creating another profitable organic hardware system like the X-Box is virtually nil. What needs to be done is something extremely logical and affordable. Rumors were that Microsoft was going to partner with Nokia (NOK) and there was even more speculation that Microsoft was then going to buy some or all of that company. Forget about buying Nokia (which you’ve done, correctly I might add). If Microsoft is on the acquisition path, Research in Motion (RIMM) is more compelling purchase.
"Research in Motion’s market cap is now under $20 billion, with no debt, plenty of cash flow, and a solid footprint in the smartphone market. Nokia on the other hand is larger, leveraged with high-yielding debt, and offers product lines not applicable to Microsoft’s core business. Blackberry currently supports Windows and MS Office so further integration would appear to be easy to accomplish. So if the rumors are right, and Microsoft is going to make an acquisition- Research in Motion would appear to make the most sense."
Abstracts are from the Rhodes Capital Blog
Happy Investing : )