BBRY plunged 17% Friday after the company announced it’s anticipating a quarterly loss of nearly $1 billion, due largely in part to the failure of the new BlackBerry 10 line of phones. The BB10s were supposed to be the shot in the arm the ailing company needed.
BlackBerry also announced plans to slash its workforce by 40%, or around 4,500 people.
BBRY now trades around $8.50. This is quite a long fall from BlackBerry stock’s heyday.
In June 2008, BBRY shares (then trading under RIMM) peaked at a lofty $148, giving the company a market cap of $83 billion. That was when the BlackBerry device was the preferred choice among top professionals.
However, the launch of the iPhone and devices using Google Inc’s (Nasdaq: GOOG) Android operating system crushed BlackBerry.
In fact, the BlackBerry phones may be headed for the mobile phone graveyard.
All this has triggered a bid of $9 a share from BBRY’s biggest shareholder, Fairfax Financial, to take the company private in a $4.7 billion bargain-priced deal. Fairfax owns roughly 10% of BBRY at around $17 per share, nearly half the price of the firm’s bid, which has a Nov. 4 deadline.
The proposal values BlackBerry at an 80% discount to book value and a mere 0.17 times its sales, the cheapest revenue multiple on record among like-sized North American telecommunications or tech companies, according to Bloomberg.
And it’s unlikely any other bids will value the company higher…
Competing Bids Won’t Bolster BBRY Stock
The Fairfax bid might not be the last, but investors shouldn’t expect anything higher – especially now that the stock is dropping.
Following Fairfax’s contingent offer, BBRY gained a paltry 1%. Shares closed at $8.82 Monday, below the $9 offer price. Fairfax capped the upside at $9.
“I would think a competing buyout offer is quite unlikely,” Elvis Picardo, strategist at Global Securities in Vancouver, told Reuters. “The miniscule premium, and the muted market reaction, is another indication that the market views the odds of a competing bid as slim.”
Furthermore, should BlackBerry go with another buyer, it will have to pony-up a not-so-slim $150 million break-up fee.
Additionally, while the bid is below BlackBerry’s break-up value, the smartphone maker is losing customers, shedding market share, and burning through cash. The sum of its parts continues to fade.
Brian Colello, a Morningstar analyst, said even if other buyers do come forward, they are unlikely to be interested in BlackBerry’s phone business.
“There is no value for the BlackBerry 10 ecosystem,” Colello told The New York Times. “The value of this company is cash and patents.”
Indeed, BlackBerry boasts about $5 in cash per share and has no debt. The Ontario-based company also has patents, technology, and security networks worth $8 to $10 per share, or about $2 billion. Those patents and technologies, regardless of synergy, are some of the world’s best in the mobile market and could be attractive to other players in the space like Apple Inc. (Nasdaq: AAPL), Samsung, and Microsoft (Nasdaq: MSFT).
But the market for patents has cooled considerably. Moreover, BlackBerry doesn’t directly control a number of its most important patents, which are owned jointly with rivals such as Apple and Microsoft.
Tuesday, even among chatter of competing bids, BlackBerry stock (Nasdaq: BBRY) limped lower some 2.78%.
But a Fairfax purchase could be the best move for BlackBerry now.
BBRY and Prem Watsa
Fairfax is run by Prem Watsa, a former BlackBerry board member who stepped down last month to avoid any conflicts of interest.
Often described as Canada’s Warren Buffett because he too takes a long-term approach to investing, Mr. Watsa is an astute investor. He restored Fairfax’s health after the firm suffered steep losses related to the Sept. 11, 2001, terrorists’ attacks, a number of natural disasters, and sizable acquisitions inked in the late 1990s. More recently, Mr. Watsa helped Fairfax reap more than $2 billion in gains betting against the U.S. housing market.
But the BlackBerry investment may prove to be the 63-year-old Indian-born investor’s most challenging move yet.
And the bid is by no means a done deal.
First, Fairfax will conduct its due diligence. Then it must find $1.6 billion to fund the deal. Fairfax is seeking financing from Bank of America Merrill Lynch (NYSE: BAC) and BMO Capital Markets (NYSE: BMO). These lenders may not be so eager to dole out that kind of cash for a company whose future is risky and questionable.
Additionally, the agreement doesn’t bind Fairfax to ultimately make a firm and final offer. It also highlights the feeble negotiating position BlackBerry finds itself in.
Even though 42 days remain for other bidders to emerge, not many are expected. You see, BlackBerry has been on the block since August. While a number of U.S., Canadian, and Asian companies have chewed over bids for part of the company, none have emerged with an offer.
Mike Lazaridis, the co-founder of BlackBerry who stepped down as co-chief executive in 2012, has also been mulling making an offer with private equity investors. Speculation emerged Monday that he may join the Fairfax consortium.
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BlackBerry Limited designs manufactures and markets wireless solutions for the worldwide mobile communications market. The Company provides platforms and solutions for access to email phone SMS messaging Internet and Intranet-based applications.
The following ETFs hold BlackBerry Limited and have the exposures noted. You can sort any column of data by clicking on the heading.
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