RIM (RIMM) Bounces as M&A Rumors Heat Up

Research In Motion (Nasdaq: RIMM) M&A rumors are heating up today, as Bloomberg hints that the stock (read: Company) may be cheap enough for a successful buyout.

RIM is currently trading with a P/E of 4.7x FY12 EPS estimates, which is the lowest of any communications-equipment provider. Market cap is off more than 80 percent from a peak three-years ago, when it was building at $83 billion, as offerings from Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) have drained RIM of its beloved market share.

Who does Bloomberg point to as a potential suitor? Microsoft (Nasdaq: MSFT) or Dell (Nasdaq: DELL), who else?

According to BMO Capital, amid RIM's Co-CEOs being more committed than ever to the success of RIM (maybe should've been more committed two-years ago?), a buyer would gain access to a plethora of business clients and a free cash flow generating machine.

At $40 per share, RIM would still be cheap compared with the rest of the industry.

But do two wrongs make a right. RIM is said to have 77 million users by the end of its FY11, up from 42 million last year, according to Bernstein. Microsoft has dropped market share following the KIN failure in early 2010, from 6.8 to 3.6 percent, according to Gartner data (though its Windows Phone 7, and deal with Nokia (NYSE: NOK) appear to be gaining traction). Dell has also never had a strong presence in the mobile world.

Some of the potential situations that might happen:

• Co-CEOs Jim Balsillie and Mike Lazaridis of RIM will be unlikely to discuss M&A, though shareholders might have something to say about that;
  
  
• Microsoft might just want to stick to its guns with Windows Phone 7, which is a marked improvement from its KIN offering last year;
  
  
• A bid at $40 comes in, and RIM rejects, citing implicit value in the company. This would be a boon for shareholders, who have survived a sharp fall since 2008;
  
  
• RIM may entertain the idea, but will hold off until 2012 or 2013 after it launches several new products. Some believe that RIM has a long road to climb, and will barely catch up in a best-case scenario.

Though the talk abounds, one thing is clear: RIM is still a profitable company, and will be so through at least 2012 despite warnings from executives.

For the risky investor, a rebound from a potential M&A bid may give shares enough juice to warrant the bet. Maybe that's just what Mike Dell and Steve Ballmer are thinking.

RIM is trading 5.6 percent stronger on the session.

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