Could RIM Be The Next Patent Play?

This morning, little known activist investor Jaguar Financial said that it wants Research in Motion RIMM to spin off its patent portfolio, or perhaps sell itself. While few, if any, have heard of Jaguar Financial, it is the call for Research in Motion to do something with its patents that has investors buzzing today. Clearly we are seeing a "patent war" going on in tech, as companies try to hold all of the profits for themselves, and cut down on the ability to get sued. The deals first started with Apple AAPL, Microsoft MSFT and the aforementioned Research in Motion buying bankrupt Canadian company Nortel's patent portfolio. The patent portfolio fetched $4.5 billion, far more then anyone thought it would initially go for. The we had the deal for Motorola Mobility (MMI, with Google GOOG buying the company not only for the hardware, but mostly for the company's vast patent portfolio. Google is paying $12.5 billion for Motorola Mobility, and is paying hundreds of thousands of dollars for each Motorola patent. We have also had rumors that InterDigitial IDCC would get bought out, but so far, nothing has happened. Everyone from Qualcomm QCOM, to Samsung to a lone Apple bid has been mentioned before. "Our call is for (RIM's board) to take action; no more study, take action. Take action now, before it's too late," Jaguar Chief Executive Vic Alboini said in an interview with Reuters. "We haven't found one who wasn't supportive," he said. "We haven't found any opposition." RIM has certainly faced its fair share of difficulties, as the iPhone, and Android ecosystems have lapped the BlackBerry. The company's new tablet, the Playbook, is not performing anywhere near expectations, and the company is down sharply since the beginning of the year. Getting RIM to spin off its patent portfolio is going to be tough, with co-Chief Executives Mike Lazaridis and Jim Balsillie at the helm. Shares are up slightly today, significantly outperforming the broader equity markets today, but, it does not look like anyone is taking Jaguar too seriously. At least not yet. If Jaguar is able to get Lazaridis and Balsillie to at least listen, then Jaguar wins. The two executives are notoriously hard-headed, and have been very resistant to change in the past. As such, the BlackBerry has seen its market share shrink to 22%, down from 39% just one year ago. RIM clearly has some very valuable patents, and with the company trading at around 5 times 2012 earnings, something needs to be done. Jaguar is trying to create shareholder value, and the spin or potential sale of the company is in the right direction towards achieving their goal. Of course, we have seen Canada block mergers before (Potash POT, but if there was a patent spin, that would probably be the most beneficial transaction for all sides. Otherwise, RIM will continue to see its market share shrink and shrink, and Lazaridis and Balsillie will be left scratching their heads. ACTION ITEMS:

Bullish:
Traders who believe that Jaguar Financial gets their way might want to consider the following trades:

• At 5 times present and forward earnings, RIM is a steal here. If there is some kind of deal done to enhance shareholder value, shares could see a sharp rally from current levels.

Bearish:
Traders who believe that Lazaridis and Balsillie will never let anything happen to their company may consider alternate positions:

• If the two co-CEOs do not do something soon, there may not be a company much longer. At $16 billion, RIM is still a formidable company, and could be too big to swallow. If it spins off its patents, will the company just license them, and lose all competitive advantage over the long term? if so, then that $16 billion may come down awfully fast.
  
  

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