RIM Blocked on Certicom
posted on Jan 19, 2009 06:35PM
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Monday, January 19, 2009
An Ontario judge has blocked Research In Motion Ltd. from proceeding with a hostile bid for Certicom Corp.
According to a ruling by Justice Alexandra Hoy, the BlackBerry maker will be barred from continuing its $66-million unfriendly offer for the Mississauga-based encryption company.
“The use of the confidential information provided pursuant to the two non-disclosure agreements at issue ... to assess the desirability of a hostile takeover bid breached those agreements. RIM and RIMAC shall be enjoined from taking any steps to advance the hostile takeover bid launched by them on Dec. 10, 2008,” she wrote in a judgment issued Monday.
Officials at Certicom and RIM could not immediately be reached for comment.
The ruling does not prevent RIM from entering into friendly takeover negotiations with Certicom.
The judge's decision stems from a pair of non-disclosure agreements (NDA) signed between the two companies in 2007 and 2008.
RIM has been a client of Certicom, which builds encryption software for mobile device manufacturers, since 2000. Certicom specializes in elliptic curve cryptography (ECC), a wireless security technology used to encrypt mobile data and communications. Smart-phone makers – such as RIM – and software companies use Certicom's ECC technology as a platform for building their own secure systems.
“As we are unable to engage Certicom management in a meaningful dialogue to advance the terms of a potential transaction, we believe it is in the best interests of our respective shareholders, employees and customers to make this attractive offer directly to Certicom shareholders now,” RIM co-chief executive officer Jim Balsillie said in a statement in December.
According to court documents, RIM and Certicom first entered into takeover negotiations in February 2007. At the time, Certicom's shares were trading between $5 and $6 (Canadian).
The two companies signed an NDA that limited the use of “confidential information” that RIM would use to determine the viability of a takeover and would be disclosed as part of the process.
The NDA also allowed Certicom to seek injunctive relief if RIM used any of the confidential information contrary to the terms of the agreement.
Takeover negotiations were put on hold in November 2007, when Certicom's interim chief executive officer said the company wanted to wait until it had chosen a new CEO. In January 2008, Certicom appointed Karna Gupta as the new CEO.
In March 2008, Mr. Balsillie and Mr. Gupta met to discuss the possibility of a takeover, however, RIM was rebuffed.
In June, the two sides signed another NDA as a part of their normal business relationship.
As the global economic crisis deepened in September, Certicom was ready to return to the negotiating table with RIM after first entering into acquisition talks, and signing an NDA, with another unidentified multinational company.
Although RIM was interested, the company decided it needed to undertake further due diligence by examining Certicom's portfolio of patents and its new business plan under Mr. Gupta.
Mr. Gupta gave evidence that each of the four times he spoke with Mr. Balsillie between March and November 2008, Mr. Balsillie assured him that RIM would proceed in a friendly fashion with any takeover.
Certicom “would not have provided RIM with confidential information had it known that RIM would use that information to make an offer directly to Certicom's shareholders,” according to the court documents.
Certicom provided RIM with the documents the BlackBerry maker had requested in October 2008.
On Nov. 7, Mr. Balsillie called Mr. Gupta to tell him that RIM was interested in purchasing all of Certicom and wanted to proceed in a friendly fashion. He also asked that RIM be given exclusivity to complete its due diligence. Certicom could not grant the exclusivity because of the NDA agreement with the unnamed multinational company.
Three weeks later, on Nov. 28, RIM sent an offer of $1.50 per common share to the board at Certicom, whose stock had plummeted in the midst of the global financial meltdown.
On Dec. 10, RIM took its bid to Certicom's shareholders. Certicom responded by recommending its shareholders reject the offer and kicked off an auction to secure a better sale price while taking the case to court.
Certicom eventually concluded that the “RIM offer is inadequate, opportunistic” and not in the best interest of shareholders, according to a post on the company's website.
RIM would have acquired a key piece of security technology used by its smart phone competitors if its hostile bid for Ceritcom had succeeded. Certicom's ECC technology is used as a security platform by other companies such as Motorola Inc., Texas Instruments Inc. and International Business Machines Corp.
“There's a revenue aspect to this, but it's also about control,” said Carmi Levy, an analyst with AR Communications Inc. “RIM can establish a competitive beachhead by owning that technology and controlling how it is distributed worldwide.”
Although the deal appears small, it would have been only the third major acquisition in the past three years for a company that prides itself on in-house innovation and rarely opts for mergers and acquisitions. In March, 2006, RIM purchased California software maker Ascendent Systems Inc. and in July of that same year it picked up Slipstream Data Inc.
The Waterloo, Ont.-based company has long used its attention to security as a selling point. Its dedication to a secure messaging system has enabled the company's BlackBerry devices to become a staple for government officials, CEOs and even agents in the U.S. Federal Bureau of Investigation.
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