Research In Motion Ltd. (RIM) is looking to gain more control over the security components of its BlackBerry platform by making a hostile takeover bid for encryption vendor Certicom Corp.
Certicom's chief product offering is its Elliptic Curve Cryptography (ECC), which is licensed by many key industry players. The company counts RIM, Microsoft, Palm, Motorola and IBM among its customers.
"Many, if not all, of RIM's products have used [Certicom]," said Craig Mathias, principal of Farpoint Group. "They might actually save money in the long run."
"[RIM] already has a relationship in place to pay for some of the technology that they license [from Certicom], but based on the amount of money we're talking about here, it makes sense to just control the company itself and dictate where you want it to go," said Jack Gold, president of J. Gold Associates.
Shares of Certicom were trading around $0.64 on Dec. 2, but since RIM publicly announced plans to offer shareholders of the company $1.50 per share, the price of the company's stock has shot up. It closed at $1.25 on Friday.
Apparently, RIM has been negotiating with the company since February, but talks haven't progressed, so RIM is initiating the hostile takeover. Certicom has responded by publicly inviting industry rivals to make bids of their own. It has formed a subcommittee of its board of directors to evaluate RIM's bid and to seek other suitors.
Kathryn Weldon, principal analyst for enterprise mobility at Current Analysis, said RIM likes to own many of the technical underpinnings of its solutions in order have more control over them. She said this gives RIM some technical and market advantages.
RIM would get a royalty revenue stream from competitors that also license Certicom's technology, Mathias said, but he added that RIM may be interested in keeping the company's technology out of the hands of its competitors in the long run.
The security of the BlackBerry platform has been a key differentiator for RIM in the enterprise market. Taking control of a leading developer of encryption will only boost that market advantage.
"The security business is going to be important forever," Mathias said. "And advances in security – anything that makes security more secure or easier to use or provides demonstrable competitive advantage – [will] have value. Obviously, RIM picked Certicom's technology way back when, so it sees something there."
Certicom also serves more than just the mobile computing market. It provides security technology for asset management systems, chip manufacturers, telecoms, and the gambling industry.
It remains to be seen whether another player will come forward to compete with RIM for Certicom, but Gold doubts that the company is opposed to being acquired by RIM.
"I don't think Certicom is trying to fight off the bid," he said. "It's just trying to leverage it to get more money from someone else."
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