Why Microsoft Won't Buy RIM

A number of analysts and RIM followers have speculated that the free-fall in the value of RIM's shares, from $148.13 in June to about fifty bucks in late October, might lead to a takeover bid from Microsoft.

Analysts give several reasons:

* Deepening rivalry with Apple (AAPL) and an economic slowdown that threatens to curb demand for BlackBerrys.

* Concerns that heavy spending in the face of competition will eat into profit margins. On Oct. 20, Bindu Benjamin, an analyst at broker First Global, downgraded RIM to "market perform with an under-perform bias," and Morgan Keegan analyst Tavis McCourt cut his 2009 revenue growth forecast to 84% from 92%, saying RIM faces a tougher economic environment.

* Slowing sales. James Faucette of Pacific Crest Securities said sales of the Pearl Flip have been "tepid at best," and sales of the Curve have been bumpy in Canada and Britain.

* MS needs RIM. Peter Misek, an analyst at Canaccord Adams, thinks that RIM would be a better fit for MS than Yahoo. "If RIM's management would be willing to entertain the discussion, and if [RIM executives] are willing to partner up, I think Microsoft would take their call.... Microsoft has already lost the war over search as currently defined. It's now at risk for losing the next search war, in the mobile world." [BusinessWeek.com, 8/1/08].

* Microsoft's MS Mobile platform is dying a slow death.

Then again, most analysts say it won't happen.

As Faucette of Pacific Crest notes, founders Balsillie and Lazaridis together control more than 12% of RIM shares. "These guys are not sellers and have never really sold any of their shares." The Toronto Dominion Bank (TD) and Royal Bank of Canada (RY) control another 18% of RIM's equity. "You'd be hard-pressed to find shareholders willing to sell a company at $50 that was trading at almost $150 only three months ago," says Faucette.

Richard Windsor of Nomura Securities (NMR) in London says MS would probably have to pay a 20% premium, "which would make it $36 billion, and even massively depressed, that's massively expensive." Microsoft has plenty of cash, but on Sept. 22 the company committed to buying back as much as $40 billion of its stock.

Finnish wireless giant Nokia (NOK) is not in the picture, even though it yearns to penetrate the North American market. With only $17 billion in cash, "Nokia couldn't swallow RIM," says Windsor.

[Source: Arik Hesseldahl, Sci-Tech Todya.com and others]