Research in Motion Ltd. of Waterloo, Ont., is now paying a hefty price for low balling its initial takeover for encryption company Certicom Corp.
Even as RIM unveiled a new $3 per share cash bid for the Mississauga, Ont-based firm, the BlackBerry maker still runs the risk of being locked into a long running bidding war with security software company VeriSign Inc., which is also gunning for the encryption specialist, according to one Canadian analyst.
“RIM evidently misread Certicom’s appeal beyond the mobile phone industry. Now it is paying for low balling its initial offer for the company,” said Carmi Levy, research analyst and senior vice-president of Toronto-based AR Communications Inc.
Shortly after RIM’s latest offer, Certicom shares shot up gaining 84 cent or more than 38 per cent trading at $3.19 at the TSX. It’s now up to Certicom shareholders to accept or reject RIM’s offer. But a bidding war could escalate if VerisSign decides to make a counter offer.
RIM first disclosed its desire to acquire Certicom in early December last year, in a hostile bid offering $1.50 per share or about $66 million – a premium of 76.5 per cent over the price of Certicom shares on Dec. 2.
RIM withdrew that bid after a judge had issued an injunction on the offer and charged that the mobile phone company breached non disclosure agreements in making the offer. A special committee formed by Certicom also advised shareholders that RIM’s bid undervalued the company.
Three days after RIM’s hostile bid for the encryption company unraveled, VeriSign came up with a friendlier offer of US$1.67 per share, or $73 million for Certicom.
“RIM’s new offer reinforces the view that it undervalued Certicom and underscores just how much Certicom means to RIM,” Levy said.
Certicom is best know for its Elliptic Curve Cryptography (ECC) technology which is embedded in BlackBerry devices and used by Motorola, IBM and other customers including military and government departments to protect data. The technology meets U.S. National Security Agency standards.
“ECC is strategic to the BlackBerry platform and RIM’s desire to position its product as a secure device,” said Levy.
While BlackBerry smartphones have used ECC for the past 8 to 9 years now, the analyst said, owning Certicom will provide RIM with a greater degree of control over the technology’s development and dissemination.
“RIM would much rather own the technology than lease ECC and be subject to the dictates of another company that ends up buying Certicom,” Levy said.
Unfortunately, RIM misread the lack of interest in Certicom from the mobile phone industry leading it to think that it was the only contender for the company, he added.
Having Certicom under its belt will enable Mountain View, Calif-based VeriSign to considerably widen its security offerings to the very lucrative mobile market, according to Levy.
Another industry insider and former Certicom manager hopes the company ends up with another Canadian tech firm.
A merger would be beneficial for both companies, according to George Gilka, a former senior business development manager for Certicom and now a security consultant based in Ottawa.
Proximity of location and shared workplace cultures would ease transition issues and smooth out product development, he said.
“I think it will be a good thing for Certicom and RIM – interestingly they also come from the same tech hot bed,” he said.
Meanwhile Certicom said on Tuesday that its board of directors is reviewing the latest RIM offer.
Certicom will advise its shareholders of the board’s position no later than Fe. 5 If shareholders decide to go with the RIM offer and VeriSign decides not to raise its bid, Certicom can terminate its earlier deals with VeriSign.
Certicom, however, will have to pay a $4 million termination fee to VeriSign.
