New Trade Playing Above the RIMM

Posted by

HereisapreviewofwhatIwillbediscussingtonightonOptionsActiononCNBCat5pmest:

RIMMreportedamuch?

anticipated?

fiscalQ4lastnightthatmissedfairlydourexpectationsandstatedthattheywillnotbeofferingquantitativeguidanceanymore,ratheritwillbemorequalitative?

Soundsabitfishytome,wheninvestorsandWallStreetaremostskeptical,thenewmanagementdecidestobeless?

transparent。

Iamnotgonnagointogreatdetailonthequarterandthenewstrategy,Barronsdidafairlydecentwrapoftheconferencecallhere?

butIguessoneoftheonlyreasonsyouwouldbuythestockhereisifyoufeltthatnewCEOHeinscommentthatitwouldbePrudenttoexplorealloptionsmeansthattheyareopentoasale?

Detailsofpotentialpartnershipsremainvague,andthefollowingcommentfromtheCEOinthepressreleasedoesntshedawholeheckofalotoflightonwhatcouldbeinstore?

Weareundertakingacomprehensivereviewofstrategicopportunitiesincludingpartnershipsandjointventures,licensing,andotherwaystoleverageRIMsassetsandmaximizevalueforourstakeholders。

ThestockisACTIVISTBAIT,recently13ffilingsrevealedthatDavidEinhornsGreenlightCapitaltookacloseto3millionsharestakeinthecompany?

WhenwegetQ113fdisclosuresinmidMay,IwouldexpecttoseeincreasedHedgeFundownership,andIwouldassumethatmostactivistinvestorsthinkthereisasenseofurgencyhere,evenifitdoesntappearthatmanagementdoes?

Ialsothinkthereisaverygoodchancethatthissituationresolvesitselfsometimeinthesecondhalfof2012,withthecompanybeingforcedintoadealbyactivistinvestors,notthefriendlyCanadiankind,ButripyourfaceoffThirdPointCapitalkind。

Iamnotsureintheneartermthereisatonofdownsideasinvestorswaitfornewphonesbasedonthecompaniesnewoperatingsystems,butIdothinkthisstockcouldlanguishuntilinvestorsstarttomakesomenoise?

Butoncethenewsstartsinearnest,thestockcouldverywellbebackinthehighteens?

Witha$7。

5?

billionmarketcap,and$1。

7billionincash,thisisnotexactlyahard?

acquisition?

formost?

competitors?

lookingtoleapfrogpeersinthesmartphonespaceinamarketsharegame。

RememberthatGOOGpaid$12。

5bforMMI(extheir$3。

5bcash),nowthiswasprimarilyforMMIspatentportfolio,butifanyonecouldplaceavalueonsomeofRIMMshardfoughtparentsfromlastdecadethenmaybethethinglooksthatmuchcheaper?

BusinessInsiderhadanicelittlerundowntodayofsomeprospectivebuyers(here)。

Inmyyearsinthisbusiness,AAPLisreallytheonlyendmarkettechcompanythatIhaveseenturnthingsaroundfromthebrink,andgivenRIMMshistoryoflackofinnovationIwouldntplaceanyseriousbetonaturnaroundanytimesoon?

Thecompanysvaluewillbeinwhatalarger?

competitor?

can?

squeeze?

ourofthem,notforthemtocreateaniPhonekiller。

Inmynormalsortofcontrarianway,Iwouldmuchratherplayforatakeoutthenameltdown,itsjustmorefunatthispoint?

IwouldntexactlybuythestockbutIliketherisk/rewardofanoutofthemoneycallspreadthatwouldplaceapurchasepriceinthemidtohigh20s。

TRADE:RIMM14。

33BoughttheJan1320/27。

50CallSpreadfor。

75

-Bought1Jan20Callfor1。

08

-Sold1Jan27。

50Callat。

33

Break-EvenonJan13Expiration:

Profitsbtwn20。

75and27。

50makeupto6。

75,maxgainof6。

75above27。

50

Lossesofupto。

75btwn20。

00and20。

75,withmaxlossof。

75,20。

00orbelow

Technically?

thechartis?

like?

acoiledspring,andtheleastbitofGoodnewsandI?

think?

youhaveastockinthehighteensandthenyouwouldprobablyseeatakeoutvalueofsomewherenear$15billion,whichwouldputthestocknear$27。

50

1YRRIMMChartfromBloomberg

SanfordBernsteinanalystPierreFeragu(ratesthestockNeutralwith$12target)madethefollowingargumentsaboutthevalueofthecompanysassettotherightbuyerinanotetoclientsdatedMarch13th:

RIMs75musersareworthmorethanthecompanysmarketcapitalisation。

RIMiscurrentlyvalued?

atonly~$90peruser-lessthanhalfHTCs~$280peruser。

Manycompaniescouldseesubstantialvaluein?

thisasset。

Asacoupleofillustrationsonly,withoutexpressinganyopiniononthelikelihoodofsuchmoves?

aMicrosoftcouldconsidersuchanacquisitionandinvestanotherfewhundredsofdollarsperuserin?

offeringreplacementphonesbasedontheiroperatingsystem,retainingtheBlackberryemailexperienceand?

thepopularBBMservice。

ThiswouldpotentiallyquintupleWindowscurrentsmartphoneuserbase。

RIMsmarketsharewouldbeakingmakerintheconsolidationofthesmartphonespace。

A?

numberofsmartphoneplayerscouldseeRIMscurrentmarketshareasakeystrategicasset。

Notonlyis?

RIMincommandof11%ofshipments,oralmosthalfthemarketleader,butalsoRIMhasanevenlarger?

shareofusers,havingbeeninthebusinessformuchlongerthanmostcompetitors。

Moreover,RIMsuser?

baseisofveryhighqualitywithadominantshareofcorporateusers。

MicrosoftcouldseeRIMs10%share?

asabridgeheadfromwhichtoattacktherestofthesmartphonemarket。

HTCcouldaddRIMs10%ontoits?

existing11%share,quicklyreachingthescaleofSamsungandApple。

Anyofthelattertwocouldleapfrog?

itsclosestcontenderwithsuchanacquisition

Abuyanupgradeacquisitioniseminentlyviable。

Anacquisitionbyatradebuyerwithanexisting?

smartphoneplatformmakesalotofsensetous。

Weestimateatradebuyerwouldextract$18bnofvalue?

fromtheacquisition,cumulatingadecentIPportfolio,thecashcowofexistingservicefeesandthe?

strategicvalueofRIMsuserbase。

Thisisa100%premiumtotherecentstockprice。

Althoughweseethis?

asaclearupsiderisk,wedontseeanylikelycontenderyet。

Microsofthasoftenexpresseduneasewiththe?

ideaofinvestingintohardware;AppleandSamsungarelikelytoobusymanagingtheirongoingsuccess?

andHTCwouldnthavethefinancialstrengthtocarryoutsuchanoperation。

Timeisofessenceaswell。

All?

3assetswillseetheirvaluedeclinerapidlyovertime。

IPvaluationsarelikelytocomedown,asthePatent?

Warssettles,RIMsservicerevenuesarelikelytoshrinkrapidly,asthecompanysuserbasedecreases?