Sunday, 13 November 2011

RIM’s chief critic argues for change

RIM’s chief critic argues for change
Published On Sun Nov 13 2011 Ian Austen New York Times
With its stock down about 65 per cent this year, Research in Motion, the maker of the BlackBerry, has no shortage of unhappy shareholders.  But few of its investors have sought and received as much attention over the past few months as Victor P. Alboini, the chairman and chief executive of Jaguar Financial.In several interviews since June, Alboini has called for the replacement of RIM’s co-chief executives, demanded the appointment of an independent chairman and urged the company’s board to consider selling the company or breaking it into three units.While many analysts have been critical of RIM, no other investor has made as public a clamour against the company as Jaguar. But a closer look at Jaguar Financial raises questions about whether it really has clout over RIM’s strategies.

Often characterized in media reports as an activist investor, Alboini is little known in the United States. He and his company are not major forces in Toronto’s financial community, as he acknowledges. Even after its steep decline this year, RIM has a market capitalization thousands of times larger than Northern Financial, the holding company through which Alboini controls Jaguar.
Doubts about Jaguar’s influence are not helped by Alboini’s decision not to disclose the size of his stake in RIM or identify the 13 other investors who, he says, back his crusade and collectively hold 10 per cent of RIM.
But a perhaps larger issue is the track record of his own companies. This year, Northern Financial’s share price dipped so low it was forced to sell about $3 million in stock to avoid being delisted from the Toronto Stock Exchange.In October, the Canadian regulator of securities dealers said it would hold a hearing into accusations that Alboini and other executives of Northern Securities, the brokerage firm owned by Northern Financial, had violated several rules when executing trades on behalf of Jaguar.
And while separating the positions of chief executive and chairman is at the top of his to-do list for RIM, Alboini performs the dual role at Northern Financial, Jaguar and a small Canadian pipe maker, Lakeside Steel.
Alboini, a former securities lawyer and author of a widely used Canadian textbook on security laws, said his dual roles were a matter of circumstances.Saying his three companies are small, “my only pitch would be that the higher you move up the food chain, more independence between the chairman and CEO is required. I justify the difference on that basis.”Alboini has not raised these concerns directly with RIM’s management, and last month John E. Richardson, the company’s lead director, withdrew an agreement to meet with him.
“Mr. Richardson does not believe that Jaguar’s interests are aligned with RIM’s long-term shareholders,” said Tenille Kennedy, a RIM spokeswoman.Like many disgruntled RIM investors, Alboini questions the credibility of Jim Balsillie and Mike Lazaridis, the co-chief executives of RIM, after the company repeatedly missed financial forecasts and delayed product introductions.But he goes beyond that to blame their outside interests for much of what has gone wrong at RIM. Until recently, Alboini maintained, the two leaders spent about 75 per cent of their work time dealing with personal projects. In Balsillie’s case, it was an unsuccessful attempt to acquire a National Hockey League team; for Lazaridis, it was financing and establishing the Perimeter Institute for Theoretical Physics in Waterloo, Ont., where RIM is based.Kennedy said Alboini’s claims about how the co-chief executives spend their days “are inaccurate, completely outside Mr. Alboini’s knowledge and frankly ridiculous.”
While Jaguar now describes itself as a merchant bank, it originally was a Montreal-based mining company known as Jaguar Nickel. In 2006, Jaguar sold its last mining properties to BHP Billiton for about $30 million. The resulting hoard of cash prompted a hostile bid by Northern.Before this year, Jaguar had no experience in the technology or telecommunications sectors. And its activist role has mainly involved much smaller companies. It began a takeover bid for a courier company that specialized in medical industry shipments in 2007. While unsuccessful, Jaguar nevertheless walked away with a gain of $10.2 million on its shares.
It also persuaded the Ontario Securities Commission in 2009 to block a takeover by HudBay Minerals of another Canadian mining company that Alboini had argued excessively benefited the target company.
When it comes to explaining the performance of Northern Financial, whose stock has a 52-week high price of 32 cents and is trading at just more than 5 cents, Alboini sounds somewhat like Balsillie and Lazaridis. All of them describe their situations as times of transition that should soon reverse.
As for the regulatory hearing, scheduled for May, Alboini dismissed the accusations as “totally preposterous” and characterized them as the product of nitpicking by an overzealous regulator.
Alboini created his consortium of RIM investors through contacts and, in some cases, by cold-calling investors. While declining to quantify his stake in RIM, he acknowledged it is relatively small. Under Canadian securities law, stockholders with less than a 10 per cent stake do not need to publicly identify themselves.
Jaguar’s role, he said, is to be a public voice for large, institutional investors that prefer not to present their disagreements with companies in public.
“I don’t think we’re as important as the key shareholders,” Alboini said. “In Canada, you might ask yourself who are the people who would step forward and try to provoke change. There are not many, if any at all.”
None of the investors he says he represents has any formal commitment to Jaguar, so he is not identifying them publicly or to one another. One of the investors, who holds about 3 million RIM shares and who was identified by Alboini, agreed to discuss Jaguar if neither he nor his fund, which has a policy of not discussing its investments in public, were identified.His story, however, does not neatly fit Alboini’s narrative. The investor, who was involved with RIM at the time of its initial public offering in 1997, recently began buying RIM stock again. The negative public sentiment toward the company and its leadership, he said, had devalued the stock to a point where it did not reflect its underlying value from the monthly fees generated by 70 million BlackBerry accounts.
In addition, the investor believes a new operating system RIM plans to introduce next year may be licensed to other handset makers, giving RIM great long-term potential.He was ambivalent about Alboini’s governance concerns and suggestions that it was time to change management.“These guys have made some serious mistakes,” said the U.S.-based investor, particularly when it comes to meeting financial estimates. But, he added, “we’re not really frustrated with management. I’m not sure that shaking things up in the near term is a good thing.”
A longer-term RIM investor from Canada, who spoke under the same terms, was even more conditional in his support for removing management, calling it “Plan B.” For his fund, RIM’s plan to reverse its fortunes with new BlackBerrys in 2012 remains Plan A.“We’re not pushing to change management at this time,” he said. “We’re prepared to give them time.”
The real value from an alliance with Alboini, both investors said, was to pressure RIM’s management to improve its financial focus and communications and introduce its new product line.
“The management team at RIM needs to look over its shoulder,” the U.S. investor said. “I hope I can influence Vic a little bit on what he can get.”

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