BlackBerry Buyout Offer Raises Array of Questions
An offer to take BlackBerry private does not end the uncertainty surrounding the ailing smartphone maker.
BlackBerry said on Monday that it had signed a letter of intent from a group led by Fairfax Financial Holdings, a Canadian insurance and investment company, to pay shareholders $9 a share in cash, pending a variety of conditions, taking the company private.
The $4.7 billion offer from Fairfax, which already owns about 10 percent of BlackBerry, is a powerful symbol of the phone maker’s decline. In June 2008 — a time when BlackBerrys defined smartphones — the company had a stock market value of $83 billion.
Any deal is far from done. Fairfax did not identify the other investors in its consortium, which is seeking financing. And while the offer could flush out potential rival suitors, it is unclear who might be tempted to come forward, given the company’s uncertain prospects. Investors gave a muted endorsement on Monday, with BlackBerry shares rising 1 percent, to $8.82, but failing to reach the $9 bid price.
V. Prem Watsa, Fairfax’s chairman and chief executive, told shareholders in March that the company paid an average price of $17 for its BlackBerry shares, giving him an obvious interest in at least stalling the slide in BlackBerry’s shares.
Yet not only are there questions about the offer, several analysts say it is not clear how the Fairfax group could stem BlackBerry’s rapid decline or stabilize the company.
“Last week was essentially an announcement that they are leaving the handset business,” said Jan Dawson, a telecommunications analyst with Ovum. “But pick any market they’re trying to go into and there are strong, entrenched competitors.”
Given the high risk involved in investing in BlackBerry, one of the most pressing questions surrounding the deal is the identity of anyone prepared to invest in the company alongside Fairfax. One possible clue came from the fact that Byron D. Trott, the banker used by Warren E. Buffett, was advising Fairfax. Mr. Trott and his firm, BDT & Company, often work with wealthy private investors.
Mike Lazaridis, the co-founder of BlackBerry who stepped down as co-chief executive in 2012, has been interested in making an offer with private equity investors, people familiar with the situation said. That led to speculation on Monday that he might join the Fairfax group.
Through a spokesman, Mr. Lazaridis declined to comment. Neither Fairfax nor Mr. Watsa responded to requests for comment.
Just as unclear is how a buyout would be financed. Fairfax did not say how much cash it was prepared to put toward the deal, or how much debt it might expect BlackBerry to take on in a buyout. BlackBerry is largely debt-free and had about $2.6 billion in cash at the end of the last quarter, leaving just a couple of billion dollars needed to conceivably strike an acquisition.
But any bank that provides financing could be taking a risk. The company consumed about $500 million of its cash during the last quarter, while the coming layoffs and sluggish sales raise the possibility that even more than that may vanish in the current quarter.
The offer establishes a timeline and a price floor for other potential bidders. But with the company in free fall, there is little certainty of another bid emerging in the coming weeks.
Brian Colello, an analyst with Morningstar, said that other buyers, if there are any, were unlikely to be interested in BlackBerry’s phone business.
“There is no value for the BlackBerry 10 ecosystem,” he said. “The value of this company is cash and patents.”
Analysts’ estimates put the value of the patents at about $2 billion. But not only has the market for patents cooled, BlackBerry does not directly control many of its most important patents, which it owns in common with other technology companies like Apple and Microsoft.
Still, BlackBerry continues to have a strong booster in Mr. Watsa. He resigned from BlackBerry’s board in August to avoid any conflicts of interest after the company announced that it was engaged in a strategic review that might include a sale.
Mr. Watsa’s involvement in a buyout would ensure Canadian control of the company, which is based in Waterloo, Ontario, removing a major hurdle for a deal. While a number of Chinese companies, particularly ones with little market presence in the West, might bid for BlackBerry, the Canadian government would most likely block any such takeover on national security grounds.
Historically, Mr. Watsa has favored buying distressed companies and then guiding turnarounds. While the strategy has generally been successful, the company’s recent history includes some prominent failures. CanWest Global Communications, once a large Canadian television broadcaster and newspaper publisher, and AbitibiBowater, a paper maker, both collapsed and ultimately were delisted. Fairfax also began buying heavily in Torstar, the parent company of The Toronto Star and the romance book publisher Harlequin, in 2007. Since then, Torstar’s share price has steadily declined.
Yet Dell is a veritable tech powerhouse compared to BlackBerry, whose North American market share has slid to 3.4 percent from 51 percent in just four years. In Dell’s case, revenues are down and demand for its products has weakened because of the growth of tablets, but Dell remains a major provider of commodity PCs and servers, and owns business and government software assets that may provide it with a more certain path forward.
BlackBerry’s failure to keep up with Apple and Google was a consequence of errors in its strategy and vision. First, after growing to dominate the corporate market, BlackBerry failed to anticipate that consumers — not business customers — would drive the smartphone revolution. Second, BlackBerry was blindsided by the emergence of the “app economy,” which drove massive adoption of iPhone and Android-based devices. Third, BlackBerry failed to realize that smartphones would evolve beyond mere communication devices to become full-fledged mobile entertainment hubs.
BlackBerry insisted on producing phones with full keyboards, even after it became clear that many users preferred touchscreens, which allowed for better video viewing and touchscreen navigation. When BlackBerry finally did launch a touchscreen device, it was seen as a poor imitation of the iPhone. BlackBerry saw its devices as fancy, e-mail-enabled mobile phones. Apple and Google envisioned powerful mobile computers and worked to make sending e-mail and browsing the Web as consumer-friendly as possible.
Founded in 1984 as a consulting business called Research in Motion in Waterloo, a suburb of Toronto, the company introduced its first BlackBerry device in 1999. For e-mail-obsessed Wall Streeters and other corporate users, it was a godsend. BlackBerry pioneered “push e-mail,” meaning that users simply received their messages when they were sent, instead of having to constantly check for new e-mails. BlackBerry’s QWERTY keyboard was like an epiphany: no more pecking at a numeric keypad to eke out messages. In the years that followed, the BlackBerry keyboard spawned a whole generation of dual-thumb e-mail warriors.
Originally Found From:-
http://dealbook.nytimes.com/2013/09/23/blackberry-reaches-4-7-billion-takeover-deal/?_r=0
http://business.time.com/2013/09/24/the-fatal-mistake-that-doomed-blackberry/
(MORE: BlackBerry CEO Could Face Testy Crowd at Annual Meeting)
Read more: http://business.time.com/2013/09/24/the-fatal-mistake-that-doomed-blackberry/#ixzz2foc5ms46
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