Tuesday, February 10, 2009

RIM's Purchase of Certicom

For those who have been watching M&A activity in the markets lately, they are well aware of deals such as Pfizer and Wyeth. I had mentioned that such deals would probably be typical M&A activities in this type of market, large companies looking to acquire growth and find ways to cut costs (usually in the form of job losses).

However, it is refreshing to see acquisitions for more positive strategic purposes still happening. RIM had initially tried to take over Certicom and was halted in its tracks. Verisign then picked up the ball, only to be later intercepted by RIM's second bid. News on the street is that now Verisign won't be matching RIM's bid.

A few interesting things to note in this transaction. RIM is trading just below their $75 dollar target (which I had set last month and was verified by analysts at RBC). Also, as with any M&A, the acquirer's stock is expected to take a hit reflecting the premium payed on the acquired company (especially in a scenario with multiple bidders and higher premiums). However, because Certicom's size is incredibly small versus that of RIM, the effect on RIM's stock has been minimal. This simply re-affirms that RIM stock is finally back to the levels where it should be (Rate: Hold).

Certicom (CIC) has dropped a bit today as news of Verisign not offering a second bid has prevented the stock from going any higher, however, there is already a premium attached based on the several rounds of bidding (so Certicom stock holders can't be too upset - CIC's been at it's 52 week highs when everyone else is experiencing new 52 week lows).

From a strategic point of view, it makes a lot of sense that companies like RIM and Verisign are interested in Certicom (RIM's positioning as a secure wireless solution used by essential services and Verisign as the leader in consumer confidence payment transactions online). Although, they are already leaders in these areas and this deal doesn't provide any ground breaking advantage for RIM, it's good to see that someone with cash is still out there making purchases.

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