Speculator’s Corner: Research In Motion (RIMM) Taken Out?

| April 9, 2012 | 0 Comments

BlackberryThere’s still one way to profit from Research In Motion (RIMM)…

It’s no secret the maker of the BlackBerry smartphone has been stuck in a downward spiral.

Shares of RIMM have plummeted from more than $145 per share in 2008 to around $13 today.  A massive destruction of wealth for those unfortunate investors who bought the stock at its peak.

The decline started with the credit crisis and the ensuing recession in 2008.  And it accelerated in 2011 when falling sales led to shrinking revenue for the first time in nearly a decade.

And despite the company’s best efforts, RIMM hasn’t been able to stem the tide.

Quite simply, RIMM has been knocked out by two of tech’s heavyweights… Apple (AAPL) and Google (GOOG).  It’s a losing battle everyone but RIMM’s management and the most dedicated ‘crack-berry’ enthusiasts saw coming.

RIMM has lost a huge amount of market share to Apple’s iPhone and Google’s Android smartphones.  BlackBerrys make up a mere 10% of US smartphones… far behind Android’s 53% and Apple’s 29% market share.

What’s more, RIMM’s average sales prices are falling, margins are falling, and the number of units sold are falling.

Simply put, RIMM is a failing business.  They lost the battle with the iPhone and Android.

Of course, it finally caught up to former co-CEOs Jim Balsillie and Mike Lazaridis who were fired… I mean, “stepped down” earlier this year.

But by then, the damage was done…

Now, new CEO Thorsten Heins is looking into ‘strategic alternatives’ to revive the struggling business.

That’s music to my ears…

You see, strategic alternatives simply mean RIMM is looking to sell.  And they own a number of patents that could be worth billions.

Get this…

In a similar deal last year, Google agreed to pay $40 per share for Motorola Mobility (MMI).  That’s a 63% premium to MMI’s closing price the day before the buyout was announced.

I think we could see a similar deal for RIMM’s assets.  And at the rate things are falling apart at RIMM, it will likely happen sometime this year.

Buying cheap out-of-the-money call options on RIMM is an easy way to speculate on a buyout.  Take a look buying calls at least three months out, trading for under $0.50, and with a strike below $20.  If RIMM gets bought out, you’ll be sitting pretty.

Good Investing,

Corey Williams

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Category: Speculator's Corner

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.