BAY STREET-As RIM struggles, talk of a change at top surfaces

Sun May 29, 2011 10:30am EDT

Related Topics

* Sinking shares, product missteps led to investor unease

* Rumblings about future of co-CEOs beginning to be heard

* Any activist would need at least $1 bln to force change

* Investor with loud mouth and a plan could gain followers

* Change at top without fresh strategy seen as futile (In U.S. dollars unless noted)

By Alastair Sharp

TORONTO, May 29 (Reuters) - The two men who made BlackBerry a household name may not have the luxury of time to fix Research In Motion's RIM.TO RIMM.O flagging fortunes.

Investors are clamoring for RIM to come up with a credible response to Apple's (AAPL.O) iPhone and smartphones based on Google's (GOOG.O) Android operating system.

As its market share erodes, RIM's shares are sinking, setting the stage for a deep-pocketed activist like Carl Icahn to step in, buy on the cheap and press for big changes.

Meanwhile, the co-chief executives -- Mike Lazaridis and Jim Balsillie -- could start feeling the heat.

Grumblings about their strategic missteps were audible in the bars and breakout rooms at RIM's BlackBerry World conference in Orlando, Florida, earlier this month.

"These guys are very emotionally invested, taxed for time, and feel the pressure of being left behind and seeing your market fade away," said an investor at a top-30 fund that would likely support but not instigate an activist play.

In an open letter ahead of the BlackBerry conference, Northern Securities analyst Sameet Kanade asked RIM to consider dropping Balsillie as a co-CEO, among other recommendations. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For Starmine data: link.reuters.com/xyq79r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Shareholder activism in the tech industry is in the air. Last week, influential hedge fund manager David Einhorn of Greenlight Capital called for Microsoft (MSFT.O) chief Steve Ballmer to step down, saying it was time for fresh ideas. [ID:nN25183623]

RIM's chief executive pairing -- Lazaridis founded the company and Balsillie joined soon after -- are by far the largest investors. They also share the role of chairman of the board, making them difficult to dislodge.

RIM's BlackBerry, once the most desirable brand in mobile communication, was blindsided by the success of Apple's iPhone and is struggling to respond to the numerous major handset makers putting out Android devices.

"Jim and Mike brought the company to where it is ... which is part of the biggest problem they're facing," said Charter Equity analyst Ed Snyder, who has covered RIM since its public listing in 1997, two years before the BlackBerry was launched.

"They're stuck in the past. They know what worked and keep playing that card and it's not working any more, and they don't seem to have any ideas," he said.

Staging a successful coup, however, would be difficult and ultimately unsatisfying unless a better strategic plan was hatched, Snyder said.

"The mechanics of it are difficult, but then even after you master those you have to figure out what you are trying to accomplish."

He said the only way to help RIM's stock is to deliver a smartphone capable of challenging the iPhone and premier Android devices.

That is a proposition easier identified than fixed.

"I expect to see the Maple Leafs win a Stanley Cup before RIM builds a number one phone," said Bing Gordon of Kleiner Perkins, the Silicon Valley venture firm that helped launch Google.

Toronto's hockey team has not won a National Hockey League championship in more than 40 years.

DEEP POCKETS REQUIRED

RIM's capitalization of about $23 billion means that buying a stake large enough to force change would cost more than $1 billion, out of reach for all but the most flush outsiders.

"That being said, there are activists that have a very good reputation for making changes and will attract like-minded investors," said Damien Park from Hedge Fund Solutions, which advises both activists and their targets.

He named famed corporate raider Carl Icahn and Elliott Associates as contenders with experience investing in tech companies. Others with the funds to play include Jana Partners, Nelson Pelts' Trian Group, Bill Ackman's Pershing Square and Starboard Capital, formerly known as Ramius.

Icahn would seem to be a prime candidate. His run at Motorola a few years ago ultimately led to the company spinning off its mobile phone business.

RIM ticks many of the boxes on Park's checklist of attributes that make a company attractive for an activist.

The company, whose stock lost a quarter of its value in the past year, is undervalued, Park said, and it has a strong balance sheet and no debt. A struggle to communicate long-term strategy also might pique interest, and investor fatigue could help an activist win support.

At its current price below $45, RIM is trading at six times its own earnings forecast of $7.50 a share for the fiscal year that started in late March. The ratio only jumps to seven at the $6.46 a share analysts expect, far below the ratio of its peers.

With a 5 percent stake, an activist could force RIM to host a meeting to shake up the board or realign its strategy.

But a smaller share and an upfront attitude could also pressure management to change tack. Any investor can raise concerns at RIM's annual general meeting, due on July 12.

While an activist may seek board seats or radical change, most would be happy with a renewed focus on value creation.

"The best defense against an activist investor is a rising stock price," Park said.

The alternative could be dire, with RIM becoming "a footnote in history," said Northern's Kanade, adding rhetorically: "Remember those guys that had wireless email? Whatever happened to them?"

($1=$0.98 Canadian) (Additional reporting by Pav Jordan in Vancouver; editing by Frank McGurty and Rob Wilson)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (3)
echotango wrote:
It’s no surprise that top management’s performance comes into question when investors get tired of modest financial results and poor market perceptions. Even as an ardent RIM investor, I can see the window of opportunity slowly closing for RIM to regain its leadership position. The rapid rise of Apple and then Google coupled with what looks like leisurely and unstable product responses can only continue to generate the current market perceptions.

While RIM has solid financials, good products and the corporate market sector pretty much locked down, they have lost the industry thought-leadership they once had. This has eroded to the extent that on Best Buy’s web-store, people with absolutely no interest in purchasing a Playbook felt the need to post negative comments regarding a device they’ve never even picked up.

It’s clear that RIM must take smart measured actions but if this downward trajectory continues unchecked, at some point senior management must be held accountable and replaced.

May 29, 2011 12:04pm EDT  --  Report as abuse
sunblizzard wrote:
RIM has grown since 2007 from 3 to 9 bn, that is during the media-labeled “onslaught of Apple and Android”.

Mike and Jim can and will drive RIM further much better than any of those purely financial people could ever dream. RIM is the only company that knows what a business smartphone is.

A combination of all possible negative outcomes for the next quarters is already built into the stock today, and even that does not explain it all.
The rest is made of statements on the line “RIM will disappear”, made by people that do not understand technology and neither try their products, but rather make wishful thinking remarks (which can be rooted anywhere in their big personal luggage).

This being said, a bit more work in the PR department wouldn’t hurt them, as well as better commercials.
A couple of well executed quarters (including wrinkle-free product launches) will put the “fads” in perspective, as well as the doom sayers in their places.

When this happends, eveerybody will stand to win — apple customers the most of all :-)

May 30, 2011 10:04am EDT  --  Report as abuse
chrispycrunch wrote:
RIM should not run the company based on share price or by following. When it did so the results were a disaster. See Storm, Storm 2. What RIM must to is execute operationally: Monitor channels, work with partners, make incentives for QNX developers and channel partners to push out the playbook.

Look, this is a true portable dual core tablet that is 7″. Sell it and push sales.

Meanwhile, learn about the new update cycle with QNX/Blackberry phones, integrate QNX Playbook with Blackberry OS 8, and do not be late in delivering. It’s already pushed to 2012 for OS8.

May 30, 2011 4:30pm EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.