Desperate RIM Bulls Resort to Takeover Chatter

Shares of Research in Motion are looking cheap after a dismal earnings report, and shareholders' last hope is an unlikely buyout. As someone who's ridden once-hot tech stocks down to the bottom, I can relate to what Research In Motion

shareholders are going through right now. In these situations, the folks that hold on all the way down experience three distinct phases of bullishness:

In RIM's case, this would have gone something along the lines of buying into a highly-proprietary brand with a stranglehold on mobile email within a rapidly-expanding smartphone market.

Here's where the Apple

iPhone and Google's

Android start making waves and taking serious chunks of the smartphone market away from RIM. RIM starts delivering lousy earnings numbers, and the stock begins cratering. Investors' rationale evolves into something like “the current valuation discounts the bad news and ignores the company's long-term growth potential.”

The last of the RIM bulls hit this phase this week. On Friday, RIM dropped over 20% following an atrocious Q1 earnings report, taking the stock to levels not seen since 2006. (Also read

.) So what's the word on the street today from RIM bulls? Not “the company will reverse market-share losses with the upcoming PNX-powered phones.” Rather, it's the good old, “the stock's so cheap that it HAS to be a takeover target.”

That's the idea being floated by one Paul Taylor of BMO Harris, who identified Microsoft

and Dell

as potential buyers. Bloomberg backed him up with some data, saying that “paying $40 a share still values RIM at a discount to comparable companies in the industry.” However, some common-sense analysis destroys the idea that RIM is an ideal takeover target for anyone right now. Let's look at the stock from a big-picture perspective. It's a market-share loser facing two nimble and aggressive competitors sporting huge pockets of cash and major consumer momentum -- the aforementioned Apple and Google. Also, RIM is a bizarre structural fit for most tech companies. It's huge ($20+ billion in annual revenue), it has two CEO's, and like my Dad, it's Canadian. It's simply hard to imagine a gigantic cross-border acquisition of such a troubled company, especially since RIM's Canada-centered operations would overlap with the US-based mobile divisions of any potential acquirer, including Microsoft or Dell.

The result would be bureaucracy and confusion in a mobile-device market where speed matters. In fact, almost any possible acquirer of RIM would be an easy short, because all potential buyers would be taking on a major integration of a company that needs a major turnaround. Now, let's look at it from another perspective -- the individual names being floated around.

RIM's corporate-email systems would fit in nicely with Microsoft's enterprise business. But overall, the fit would be pretty messy. Microsoft's had a lot of trouble generating critical mass in both smartphones and tablets, so I can't imagine they'd want to take on the task of turning around Blackberry at the same time. Microsoft would also get destroyed in the press and on Wall Street if it pursued a $20+ billion deal with RIM. The company was trashed for trying to buy Yahoo

for $45 billion in 2008, and the hate would be even worse in a second attempt at a high-risk megadeal with a struggling former titan.

The idea of Dell taking over RIM is absurd. Dell has a $31 billion market cap and about $7 billion in net cash, and I don't think shareholders would be really happy if the company used all that dough (and then some) to make a mega-gamble on the future of Blackberry. We'll toss a couple more names into the mix:

Like Microsoft, Hewlett-Packard

would probably love to get its hands on RIM's enterprise-email business. Unfortunately, HP's got its hands full making Palm's webOS into a force tough enough to do battle with Apple and Google.

Same story as Microsoft and HP on the value of RIM's email systems, but IBM

turned its back on consumer hardware long ago, and it now focuses on IT services. So scratch them out.

While a takeover of RIM would serve as a nice bailout of shareholders that have lost a ton of dough, it has little basis in reality. Invest accordingly.