Will Microsoft Buy Research in Motion?

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A Canadian Icon

As appealing as the hookup may be, there are greater reasons for Microsoft to stay on the sidelines. For starters, unless RIM executives support the idea—and there's no reason to believe they would—Microsoft would have to launch an unwelcome approach that would almost certainly be resisted vigorously. Founders Balsillie and Lazaridis together control more than 12% of RIM shares. "These guys are not sellers and have never really sold any of their shares," says Faucette of Pacific Crest.

There's also the matter of Canadian national pride. Canadians love RIM and would likely rally to its cause if its revered founders opposed a hostile bid. Canadian institutions such as Toronto Dominion Bank (TD) and Royal Bank of Canada (RY) control another 18% of RIM's equity. "You'd be hard-pressed to find shareholders willing to sell a company at $50 that was trading at almost $150 only three months ago," Faucette says.

The deal would be very costly, even for Microsoft, says Richard Windsor of Nomura Securities (NMR) in London. "They'd probably have to pay a 20% premium, which would make it $36 billion, and even massively depressed, that's massively expensive," he says. And while Microsoft has plenty of cash, on Sept. 22 the company committed to buying back as much as $40 billion of its stock.

Will Investors Show Patience?

Representatives of RIM and Microsoft declined to comment on the speculation. Another potential buyer might be Finnish wireless phone giant Nokia (NOK), which has had trouble penetrating the North American market. Still, with only $17 billion in cash, "Nokia couldn't swallow RIM," Windsor says.

What happens to RIM, then? Investors may give management time to turn the stock around. Recent handsets, including the Storm, have met with rave reviews, spurring hope that RIM will fare well this holiday season. But even if sales hold up through yearend, RIM nevertheless faces an economic slump in the new year that's likely to remain a drag on consumer sentiment—and the company's already sagging share price.

Hesseldahl is a reporter for BusinessWeek.com.