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Icahn and Watsa Would Be at Odds over RIMM Investment

September 28, 2011 | About:

It has been rumored that Carl Icahn was recently buying shares of Research In Motion (RIMM). Shares popped on the news that the active investor would unleash value creating-strategies and shake up the board.

If it is true that Icahn is targeting RIMM, it would most likely put him at odds with value investor Prem Watsa. Icahn usually attempts to secure board seats in order to sell the company or parts of the company to bigger players. This was his strategy with RJR Nabisco in the 90s.

However, Prem Watsa invested in RIMM because of the founders and appears to have no interest in shaking up management at the handset maker.

Prem Watsa clarified his controversial investment in RIMM when he endorsed the co-founder CEOs.

"Research-In-Motion is run by two guys, Mike Lazaridis, who's really the founder, and co-CEO Jim Balsillie, these guys have taken the company from 0 to $20 billion, and in our experience, that's not easy to do. It's very competitive, and yes they have some challenges ahead of them, but the guys who have taken it from 0 to $20 billion will be able to figure their way through this.

Of course the valuation is cheap, all of that, but we're very focused on management, and the founder of the company who's had such a wonderful track record, not that they're infallible, but we would bet on them. Particularly right now for RIMM, getting new management would be a disaster, would be the biggest mistake that the board would make.

Yes they have lots of cash, huge cash flows, and the stock prices have come down significantly from their highs. But the fact that the founders – you know it requires a tremendous focus, both companies are in very competitive industries in the tech area – so I just gave you our perspective on the power of engaged founders."

An activist investor such as Carl Icahn would most likely take the opposite approach of Prem Watsa. Icahn would most likely try to shake up the board and fire either Lazaridis or Balsillie. Most recently, Icahn tried to shake up the board at LionsGate Films (LGF) due to outrageous executive compensation.

Icahn's long-term performance has been called into question. He is most successful at generating shareholder value when he has forced companies to go private or be acquired,. But when the companies remain independent, share performance has been dismal on average, for the proceeding 18 months.

Thus, it is most likely that the Icahn and RIMM rumors are false because he would face an uphill battle at securing board seats with institutional investors such as Prem Watsa backing current RIMM management.

Rating: 4.0/5 (7 votes)


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