Research In Motion may split into two businesses

The smartphone developer could be selling its handset business in a rumored company separation.

By Benzinga Jun 25, 2012 1:36PM
By Katey Stapleton, Benzinga Staff Writer

Reports surfaced over the weekend that distressed smartphone distributor Research In Motion Limited (RIMM) might soon be splitting into two businesses. The company's handset category may be separated from its messaging network and sold off to large-cap tech companies, if the rumors prove to be true.

According to Reuters, Amazon (AMZN) and Facebook (FB) could conceivably scoop up the handset portion of Research In Motion's brand. However, the company could choose to take matters in a completely different direction and allow Apple (AAPL) and Google (GOOG) to get in on the sale.

Research In Motion has had its fair share of struggles over the past few years. Most recently, the company had to let go of more employees in an effort to save money and restructure its business.

Along with job cuts, the BlackBerry distributor recently hired J.P. Morgan and RBC Capital to review its strategic options, which could explain a possible move to divide the business. The struggling company may no longer be able to afford to remain one complete entity.

Attempting to quell the rumors, Research In Motion spokesperson Nick Manning stated that the company's top management remains committed to maximizing shareholder value by continuing with a turnaround strategy that will soon result in the launch of new products.

Former company executives appear to support this, insisting that the problems with Research In Motion's financial and business strategy would not be solved by a separation of any sort. One such person stated that CEO Thorsten Heins would like to see the company remain integrated, as would co-founder and vice-chairman Mike Lazaridis.

Not all interested parties have the same faith in the company as its management. Morgan Stanley analysts Monday downgraded Research In Motion to "underweight," claiming the tech giant is too big for its own good.

"Downgrading to UW as we believe the only way RIM remains a viable entity is at a fraction of its current size, a transformation that erases much of its earnings power. Immediate asset sales or strategic options could unleash ~$15/sh in value but are unlikely leaving a declining BV. PT goes to $7," Morgan Stanley said in the report.

Morgan Stanley also stated that RIM will likely miss estimates in its second quarter earnings report and maintained that the situation has become so volatile that the launch of BlackBerry 10 is too late to offer any kind of saving grace during back-to-school shopping.

Meanwhile, Research In Motion's competition is pleasing investors and impressing analysts as of late. According to Oppenheimer, Verizon Communications (VZ) and AT&T (T) have both positioned themselves for profitable fiscal years, as cloud services have finally become a profitable part of the telecommunications business and network modernization is paying off.

As the smartphone frenzy continues to lure in more subscribers, Research In Motion is strategizing to get a piece of the action. While a company split may not be what the doctor ordered, fierce opposition from competing companies may force the wireless distributor to take drastic measures in the coming months.

Research In Motion closed Friday at $9.85, down about 32% year-to-date. Conversely, Verizon closed Friday at $43.95, up almost 10% year-to-date, and AT&T closed at $35.17, up around 16% year-to-date.

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Jun 26, 2012 7:00AM

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