Dominic White explains how investors of the Canadian handset manufacturer are getting edgy following its recent struggles
It’s going to be a tense next six months at Research in Motion (RIM), maker of the once-allconquering BlackBerry.
That’s how long some frustrated investors have effectively given management of the Canadian company to turn its flagging fortunes around, or else face a potentially awkward investor vote.
RIM’s bosses need to get on with the job: the shares have halved since the start of the year as Apple and Google continued to steal market share and outflank the increasingly unfashionable BlackBerry with their iPhone and Android smartphones.
The share plunge has made RIM look vulnerable to a takeover, with Nokia, the other big-name struggler, seen as a potential acquirer by some analysts.
RIM joint chairmen and chief executives Jim Balsillie and Mike Lazaridis had been threatened with what would have been a vote of no-confidence ahead of this week’s annual meeting.
An activist investor succeeded in getting a proxy vote onto the agenda of the meeting, calling for the chairman and CEO roles to be split and an independent director appointed chairman.
But before the meeting RIM and the fund, Northwest & Ethical Investments, reached a compromise deal.
As a result RIM promised to review its highly unusual corporate governance structure via a committee, while fund managers at Northwest & Ethical Investments mothballed their potentially embarrassing vote proposal.
But Jennifer Coulson, manager of corporate engagement at Northwest & Ethical, told Bloomberg that Lazaridis and Balsillie had until January 31 to “prove” the co-chief executives needed to keep their co-chairmen titles for business reasons, or else she would seek another vote on the matter.
RIM has argued that the chairman title helps Balsillie and Lazaridis drum up business, particularly outside Canada. My bet is that if the RIM share price recovers in the next six months, Northwest & Ethical and other shareholders will be happy to let the matter slide.
The real issue for investors is that they have suffered a massive loss of value. But RIM’s problem is that it’s difficult to find a way back right now given the momentum of Apple and Google.
Despite calls from shareholder advisory firms to withhold support for RIM’s lead independent director, John Richardson, all directors were returned to the board with ease.
But it was not an easy meeting for Lazaridis, who has a pugnacious personality (he recently stormed out of an interview with the BBC) and remains a huge influence over the company he helped to found. Management was taken to task for letting rivals take over its dominance of the smartphone market and for a number of alleged strategic bloopers.
“We will get better,” Lazaridis declared, flagging up the company’s stream of upcoming products with which it hopes to mount a fight-back.
These include a touchscreen BlackBerry Bold and a speedier, 4G version of the as-yet unconvincing PlayBook tablet.
The silver-haired joint- CEO appears confident of the company’s ability to turn a corner. But a series of product delays have not helped investors to share his confidence. And its market share losses speak for themselves.
Lazaridis’s turnaround job looks almost as challenging as the one facing Nokia chief executive Stephen Elop.
Voda goes for Indian
Meanwhile, Vodafone has plunged deeper into the difficult Indian mobile phone market by agreeing to buy out its jointventure partner for £3.42 billion.
Vodafone will spend the cash buying the 33 per cent of Vodafone- Essar owned by Essar, leaving it with a 74 per cent holding.
It’s a high price to pay to consolidate an investment that has struggled to generate the returns promised by former Vodafone chief executive Arun Sarin, when he took the company’s first plunge into the subcontinent.
The takeover is in line with the strategy of Sarin’s successor, Vittorio Colao, to only own or increase stakes in companies where Vodafone can exercise management control.
He cannot be faulted for his consistency in delivering on that strategy.
In April of this year, Vodafone announced an agreement to sell its entire 44 per cent shareholding in French mobile phone operator SFR, to Paris-based media giant Vivendi for £6.8 billion.
In August last year Colao sold Vodafone’s 3.2 per cent shareholding in China Mobile for £4.3 billion.
And last month Vodafone agreed to sell its entire 24.4 per cent interest in Polkomtel, a leading telecommunications operator in Poland, to Spartan Capital Holdings, an investment vehicle controlled by Polish businessman Zygmunt Solorz- Zak, for £815 million in cash.
All of those exits have been applauded by investors and Vodafone’s recent experience with Essar shows exactly why Colao’s strategy of seeking management control (and giving up where there is no path to it, as in France and China) makes good sense.
After a relatively benign beginning to the relationship, the two sides have grown increasingly frustrated with each other, as so often happens with joint ventures, particularly in telecommunications.
Vodafone entered the Indian market with a bang in 2007, in a deal that gave Essar the option to sell its 33 per cent stake for £3.1 billion by May 2011, or part of it at a market price.
But it has since argued again and again with the Indian group, which has claimed that Vodafone has sought to bully it out of the venture.
Vodafone said back in March it would buy Essar out, but it has taken until now to sort through the fiendishly complex details.
These have not been helped by Vodafone’s £1.6 billion tax dispute with the authorities there. The price Vodafone is paying to Essar includes £550 million for taxes – separate to the £1.6 billion dispute – that neither side reckons are due and which Essar will get back if it gets its way with the authorities.
Clearly then, it’s a lot of money to pay. Some will say Vodafone is throwing good money after bad: intense competition and rocketing spectrum prices have previously forced the company into a £2.3 billion write-down on Indian investments.
But with 140 million subscribers in what is threatening to become the world’s largest mobile phone market, Colao – which has cash to play with after recent exits – has many reasons to bet that Vodafone’s Indian adventure will pay off in the long run.