The deal includes a break fee of $157 million, which increases to $262 million if BlackBerry signs a definitive agreement before backing away. The initial offer is pending completion of due diligence, and it gives BlackBerry six weeks to seek additional offers. The beleaguered handset vendor announced Friday that it would be laying off 4,500 employees amid losses of almost $1 billion in the most recent quarter and a drastic slowdown in demand for its latest-generation devices.
A good-enough deal
Analysts are saying the deal to take the company private is a realistic one given how far the company has fallen.
“I think this is a fairly fair offer,” said Ronald Gruia, director of emerging telecoms for Frost& Sullivan. “This is a good thing because it gives them stability. I don’t think they’ll be moving their address anytime soon.”
Gruia says he doesn’t see the Fairfax consortium making any drastic moves to sell off or shutter parts of the company
“I don’t think a breakup would be a revenue-maximizing move,” he said. “They’re in it to make money, and the value of BlackBerry lies in the sum of its parts. As soon as you start to dismantle the company, you start losing that value.”
Other analysts say the offer gives the company some much-needed breathing room. Taking BlackBerry private lets leaders move more quickly to restructure the company, and opens up additional opportunities not available as long as the company is publicly traded.
“Going private would allow BlackBerry to restructure behind closed doors where they can focus on building the company and focusing on the enterprise sector,” said Krista Napier, senior analyst, mobility, at IDC Canada.
Mike Genovese, an analyst with MKM Partners, isn’t so positive, saying Canadian investors stepped in when others refused to participate, adding the deal will be a boon to current shareholders.
The company announced Friday it would be exiting the consumer business to focus more closely on its enterprise customers – the market that originally fuelled the BlackBerry’s growth before the company released its first consumer-centric device, the Pearl, in 2006.
BlackBerry sale was inevitable
The company has been under growing pressure this year as sales of its BlackBerry 10-based products, launched to much fanfare in January, failed to reignite consumer demand for the onetime-leader in the smartphone market. Slow sales of those devices, including the Z10, Q10 and just-announced Z30, contributed to last quarter’s red ink.
BlackBerry announced last month that it had formed a special committee to investigate the company's strategic options, potentially including selling all or part of the company, or taking it private.
Fairfax Financial currently owns approximately 10 per cent of BlackBerry's outstanding shares, and is the company's largest shareholder. Chairman and CEO Prem Watsa had been a member of BlackBerry's board, but stepped down last month when the strategic review process was first launched to avoid a potential conflict. Observers at the time saw Watsa's move as a precursor to a possible Fairfax offer - which Monday's deal confirms.
Prem Watsa: Canada’s Warren Buffett
Watsa, a billionaire value investor often compared to Warren Buffett, joined BlackBerry’s board in January 2012 when co-CEOs Mike Lazaridis and Jim Balsillie left the company. He has openly supported current CEO Thorsten Heins and his efforts to turn BlackBerry’s fortunes around, as well as the BlackBerry 10 operating system that underpins the company’s latest smartphones.
In a press release, Watsa wrote, “We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.”
Narrowing its focus to the enterprise space may make sense from a structural perspective, but Frost & Sullivan’s Gruia says it doesn’t come without its own unique risks.
“The biggest danger in this retrenching is from CEOs who are watching the company concluding that there’s just too much turmoil gong on,” he said. “They’re at risk of halting plans to continue buying BlackBerry solutions, and may instead choose to go the bring-your-own-device (BYOD) route, which some perceive as less risky.”
Risks aside, Gruia says this offer buys BlackBerry some much-needed time as it continues to assess its strategic options.
“They needed stability, and this is going to give them that stability,” he said. “Now you’ve got some financial backing, and you can focus on what you need to focus on. In a way it’s kind of like a reprieve.”
A Jobs-like return?
The offer comes after an intense weekend of speculation following Friday’s layoff announcement. The company, which has scheduled its next quarterly earnings call for this Friday (Sept. 27), was also rumoured to be targeted by Lazaridis.
The New York Times and the Wall Street Journal reported the founder and ex-CEO, who stepped off the board in March, had asked private equity groups the Blackstone Group and the Carlyle Group about putting an offer together to purchase BlackBerry and take it private. Lazaridis has not commented on these reports.
If he does proceed with a bid, it wouldn’t be on the scale of Steve Jobs’s prodigal son-like return to Apple in 1996. But it would allow him to restore some of the legacy lost when he left the company 20 months ago amid intense criticism from some investors that he failed to act quickly enough to staunch the company’s decline.
IDC’s Napier said the clock hasn’t stopped ticking for BlackBerry. The Fairfax letter allows the company to continue to shop itself around.
“It is a letter of intent, so the deal has not gone through,” she said, “and it will likely take a number of weeks to review.”