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Interesting Analysis of RIM's purchase of Dash Navigation

Tim 1481 Points
What is a little surprising though, is how good of a deal RIM seems to have gotten out of the transaction. One of the more interesting figures that caught my eye was an entry for a $26 million dollar tax credit picked up in “one” of their acquisitions. That’s right folks, by buying Dash for $8.3 million, Rim will get a $26 million haircut on their taxes. They actually had to book over $8 million in revenue during the quarter to reflect the immediate gain on their investment. The tax loss alone represents a 300% (overnight) return on the acquisition. No wonder RIM doesn’t want to talk about it, Dash seems to be more of an accounting adjustment then an actual play at their technology.
Via:
http://davisfreeberg.com/2009/06/28/ask-davis-how-much-did-rim-pay-for-dash/

Comments

  • dhn 336 Points
    And who do you think pays for the $26 M 'haircut' :evil:
  • gatorguy 326 Points
    Interesting Tim. When they first made the purchase, I expected them to work on a roll-out of their own branded nav app using Dash as a starting point. Since then it's been completely quiet. Not a peep about Dash or BB nav. Maybe it was all about tax savings.
  • infama 0 Points
    Could this really be right? I have some doubts.

    Perhaps there are other arrangements and exeptions at work here, BUT, according to my limited knowledge of tax implications of mergers and acquisitions, section 382 of the Internal Revenue code limits the use of pre-merger tax losses to essentially 4% of the transaction value and this only applies until the tax losses expires, typically 10-15 years after first incurred.


    With an $8m acquisition cost, that means that only $350K a year can be used to reduce the taxable base and so will save only about $143K a year in taxes. This means that most of those net operating losses and R&D tax credits will expire before usage.

    Now, as RIMM is Canadian, perhaps the rules there are different???

    Update: did some checking on Canadian rules. Non-Capital (Operating) losses are allowed with some minor restrictions after a change in control. The losses claimed must have arisen from ordinary business operations and those business ops must still be carried on during those years in which the deductions are sought (continuity of business principle). Non-Cap losses can be carried back 3 years for a refund or carried forward 7 years before expiry.

    Unused net capital losses expire upon a change in control. Post-acq cap. losses cannot be carried back. Prior to acquisition, all non-depreciable capital property must be valed and if appropriate, a capital loss can be registered.

    I can see why now no US firm was interested and why a Canadian firm could have their interest piqued. HOWEVER, it seems clear that unless RIMM took all their fiscal advantage from Capital losses (unlikely) that they WILL have to try continue many of the ordinary business operation of DASH.
  • Dash is sort of breathing still in that RIM is turning all their active Black Berry users into gps traffic probes. They just announced availability to BB developers of the probe data.

    I can imagine Navteq and Inrix will belly uo to the bar for this.
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