RIM Should Reach $43 With Shareholder Activism, Patent Sales

Activist shareholder Jaguar Financial Corp. urged Research in Motion this week to consider selling RIM’s patents in order to maximize shareholder value. ^[1] The stock jumped a little on this announcement despite a decline in broader markets. In the past month, the stock has rallied 35% showing some signs of interest among investors that could be bottom fishing.

Since Google acquired Motorola Mobility at a premium of 60% over Motorola’s intrinsic value, many now believe that struggling players like RIM or Nokia might be good buyout candidates — or at least targets for their product and patent portfolios. (See our note After Google-Motorola Deal Are Nokia and RIM Next?)

Management Willingness

We believe that management’s willingness to consider a sale will be one of the most important factors if shareholders want the company or its patents be acquired, although a lack of strategic fit for potential buyers and a comparatively weaker patent portfolio are some of the other hindrances that shareholders might face. (See Why RIM Makes a Poor Acquisition Target)

Is Selling the Only Option?

We believe that the company’s core fundamentals are still intact despite the success of many of its peers, and we are bullish about the prospects of a 12-18 month turnaround that underlies our near $43 price estimate for RIM stock, which is a 40% premium to current market price. The migration to QNX operating system in 2012 and solid management of its product portfolio could be the triggers for RIM in the coming months.

Although RIM’s stock has more than halved this year and declined from a peak of $70 earlier this year to around $30 as of yesterday, it has rallied in recent weeks as a number of brokerage firms have upgraded RIM (See Upgrade Gives RIM's Stock Life, QNX Still the Key).

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If investors show some more patience, they could get rewarded over time either by a turnaround in sales or by a potential bid for the company or its patents.

See our complete analysis for RIM stock here

Notes:

1. RIM Urged by Investor Jaguar to Sell Itself or Spin Off Wireless Patents, Bloomberg, September 7th, 2011 [↩]

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