What's the real truth behind Nokia's and RIM's decline

Nokia, RIM break-ups would face big hurdles

October 1, 2012, 12:32 PM

Investors banking on a break-up/sales transaction to unlock value at Nokia Corp. and Research In Motion Ltd. might want to cool their heels a bit, according to a note Monday from Credit Suisse.

“Any deal for either company is highly complex in our view, requiring simultaneous management of a declining business, as well significant restructuring, and as such an acquirer maybe be best advised to wait for both businesses to shrink meaningfully before making any potential move,” analyst Kulbinder Garcha wrote in a report in which he examines the “underlying asset value” at each firm to assess its potential upside from the stocks’ current market values.

For Nokia NOK 0.00% , Garcha finds many hurdles, along with the potential for the stock to go even lower from its current sub-$3 level. Nokia shares got a 5% boost on Monday after the company revealed a deal to supply its mapping data to Oracle ORCL +0.44% for use in applications geared towards the software giant’s large base of corporate customers.

Garcha downgraded Nokia to an underperform rating, writing that a break-up of the company “needs to be considered,” with further cash burn expected, along with the longshot bet of hinging its smartphone business on the Windows Phone operating system from Microsoft MSFT +0.17% . And while he believes companies like Apple AAPL -.00% Ericsson or ZTE would an interest in parts of Nokia, like its patent portfolio or portions of its handset business, “no single party may be sufficiently motivated to buy a company with 114K employees,” he wrote.

At RIM RIMM -0.64% , Garcha that a transaction is “not as desirable but maybe more manageable,” given that it has already appointed bankers and the transaction would be smaller than Nokia, relatively speaking. “A break up is possible, however, we question the quality of the underlying IPR (patent portfolio) and also believe that converting its existing NOC (network operations center) for other OS platforms may require a high level of effort for minimal functionality improvement,” he wrote. RIM shares were trading up 2.5% at $7.70 in recent action.

-Dan Gallagher