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Summary:

Investors have been praying that an outside company will step in to catch the falling knife known as Research In Motion. But last week an in…

Research In Motion

Investors have been praying that an outside company will step in to catch the falling knife known as Research In Motion. But last week an influential publication threw cold water on those hopes, citing high hurdles to any potential takeover of the fading BlackBerry-maker.

The report was astute in most respects. But it was wrong in suggesting that a RIM (NSDQ: RIMM) takeover would meet stiff interference from the Government of Canada.

In a December 28 article, the New York Times’ Dealbook reported that RIM’s share price had recently spiked amidst takeover rumors but that investors should be realistic about the obstacles to a sale. Dealbook perceived one of the chief obstacles as follows:

RIM is also a point of pride for the Canadian government, which has been increasingly reluctant to let foreign companies buy major domestic corporations.

Other publications reporting on a possible RIM takeover have since repeated that Canada might block a sale.

This speculation is unfounded. While the Canadian government can screen large transactions to ensure they are a “net benefit” to the country, it has used this power exactly twice since 1985.

The notion that the government has become more protectionist is based in Canada’s decision to block an Australian mining giant from taking over the country’s main potash producer in 2010. That unusual decision was driven, however, by pressure from a regional government and political ally looking to preserve tax revenue.

There are no similar circumstances surrounding Research In Motion. Dealbook’s contention that RIM is a “point of pride” is true but only to the extent that Canadians have long cited BlackBerry to promote the fantasy that Canada is a global center of innovation.

Overall, the fact remains that Canada’s current government is ideologically in favor of free markets and would almost certainly allow RIM to be sold. Canadians might gasp but no more than they did when other national icons like Tim Hortons or the Montreal Canadiens hockey team were acquired by American interests.

Then there is the fact that Canadian investors are also being hurt by RIM’s current TweedleDum-TweedleDee management structure.

According to Stephen Scott, a professional investor and constitutional law expert at McGill University:

“My own guess is that sale of the whole of a crashing corporation (or sale of its assets) would not be blocked by the Government of Canada in the same way as has been (or would be) a rising enterprise. For one thing, too much pressure by desperate shareholders, who would be certain to go ballistic if blocked when trying to recover some of their investments.”

Dealbook cites real obstacles to the prayed-for sale of RIM, including the high price tag and the obstinance of its co-CEO’s. But political interference from Canada should be far from top of this list.

Other forms of help may be on the way, however. Sources are reporting today that a management shake-up at the Waterloo, Ontario company may be on the way.

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  1. Not sure that a non-Canadian company is the solution, RIM got this far being Canada so there is still hope that someone north of the border can continue raising the “innovation bar.”
    As for whether the Canadian government will allow a non-Canadian take over or not, if we use the WIND Mobile situation as an example then it will stay Canadian owned.

  2. The writer is politically naive.  Ideology does not trump seats.  The Conservative government has 73 seats in Ontario.  That’s almost one-half of its total number of seats in Parliament.  Ontario is what
    keeps it in power.  It took the Kitchener-Waterloo seat from the Liberals in the 2008 election and is
    not going to give it back to either the Liberals or the NDP by approving the sale of RIM.  Pressure
    from hurt shareholders is meaningless.  If they vote in Canada, they do not vote as a block or in numbers
    sufficient to affect the outcome of any one seat.  As for the number of takeovers the government has vetoed, it’s meaningless.  It needs only to suggest the possibility of a veto to forestall a takeover.
    In summary:  RIM is in Kitchener-Waterloo, and K-W is in Ontario.  And Ontario is Conservative.  And the government needs it to stay that way.

  3. Bud, thanks for your comment but I just don’t see the Prime Minister et al interfering with a (hypothetical) deal of this scale as a gambit to retaining votes in Ontario. I don’t see how a vote either way would be decisive in retaining seats. Also, RIM is much less significant to the overall Ontario economy than potash is to Saskatchewan’s.

    Re investors, keep in mind too that these include campaign contributors, pension funds and so on — many of whom have been hit badly by RIM’s abysmal performance.

    You make a good point that a mere threat would suffice to forestall a veto. But I still think the potash veto was a one-off and we don’t see another move like that anytime soon.

    And finally, all this may be even more hypothetical given the news today of a board shake-up at RIM>

    1. Potash–and jobs– will stay in Saskatchewan regardless of corporate control.  Not so with RIM.
      If the Tories let RIM go it will be a noose tightening around their neck for the next four years.
      Donors are not an issue.  In Canada contributors play it safe, giving to both centrist parties.
      Ontario (ergo, Canadian) politics is the main issue here.  Americans have difficulty figuring that out.

  4. I agree with Bud. The political calculus that Jeff ignored in this piece is what will keep RIM Canadian.

    RIM is thoroughly identified with (and invested in) its role as Canada’s shining example of world-beating high-technology. Practically every Canadian knows of the story of RIM. There is no way they will let the Harper government forget their actions if it allows RIM to become American (or worse.)

    And the vote-counting will not only come in Ontario, but in every other province in the country.

    The news of the potential board shake-up is hardly news. Attempting to strip the co-chairmen roles from Balsillie and Lazarides and give it to Stymiest (who’s been a board member for the past five years) will not generate any further impetus to act by the board. It will merely satisfy the promise they made to an angry shareholder at the last shareholder’s meeting.

    Far better (in the long run) for the Harper government is to find a way to interest Balsillie and Lazarides to leave RIM entirely (as co-chairmen and co-CEO’s) so that the board can be ousted and a new, agressive board and capable CEO be brought it to oversee the dismantling and sale of the patent and product portfolio of RIM so as to best preserve shareholder value.

  5. You are completely wrong on this, however, as an non Canuck, your perceptions are miscast form your American viewpoint. I agree with some of the other comments, however, none mention the loss of Nortel and the devestation it did to the high tech biz on the country as a whole, and in pockets around Ottawa and Southern Ontario. As a country we are still feeling those effects. The Conservative Party will not want to fight the next federal election with the foreign takeover of RIM as formidable weapon in the opposition parties’ arsenal. You can bet there will be a lot of blood spilled on this issue before its over.

  6. RIM has filed a statement of opposition to a trademark that was filed more than 2 and a half years ago.
    The term SportsBerry was filed by a Toronto based company that holds a number of Sports related trademarks. RIM filed a statement of opposition on November 22 with the Canadian Trademark Office. The  Toronto company, Sports Trademarks Inc; must file a counter claim by January 22. David V Goliath!

  7. Don’t blame CEO, they want RIM win.
     
    RIM has strange culture and self distruct political environment.
     
    In RIM if a new hired person figure out major problem and introduce efficient approach, both manager and his buddy group member will proof their wrong approach works. just like someone point out driving a car is right way, pushing a car is wrong way, then both manager and his buddy group member will hate you, and proof that 3 person can also move the car by pushing it. cheating email will be sent to some vice president, saying like: see, the car moving, pushing a car is a natural part of the process, in order to deny new hired contribution of introducing skill of drive a car, they have to deny merit of driving a car.
     
    It is very strange company culture and strange company political environment, it promote stealing and cheating skill. RIM’s management may be a typical instance in MBA course.
     
    This culture deny or steal hardworking team members’ contribution/innovation, generate strange political environment, destroy RIM.
     
    So don’t blame CEO, some of their VPs and VPs’ expert generate terrible culture and self destruct political environment.

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