Has BlackBerry turned the corner?

The freefall may not be over, but BlackBerry’s financial situation may have just taken a turn for the better.

Despite a share price that’s consistently sagged below the $9 offered by Fairfax Financial Ltd. in its Sept. 23 letter of intent -- on Monday, the stock closed up 4 per cent on the TSX to $8.20 -- recent moves by the company have significantly strengthened its balance sheet.

According to a Veritas Investment Research Corp. report, recently released data sheds additional light on BlackBerry’s overall financial health – and sweetens the deal for any potential buyers. The report’s author, Executive VP and Head of Research Neeraj Monga, says BlackBerry’s regulatory filing of a 10-Q form last month highlights two key changes in its situation.

“They have managed to settle a significant portion of their purchase commitments at approximately 15 cents to the dollar, which improves their balance sheet liquidity position,” Monga told Yahoo Finance Canada. “Plus they have estimated they can receive approximately C$1 billion from the Canada Revenue Agency on account of their losses that they’re generating in their business.

More than just share value

Monga says despite data showing BlackBerry’s stock was close to the Veritas-estimated $7.59 liquidation value, the company’s general state of health is now more attractive to the as-yet-unnamed companies Fairfax has approached to join its purchase consortium.

“Both of those things suggest the overall financial state of the company for the consortium on a liquidity standpoint is perhaps better than was known on Sept. 23 when the [Fairfax Financial] deal was proposed,” he said. “Right now, when we look at the balance sheet, the liquidity value of the company does seem to be higher than where the stock is trading and higher than where the offer price is.”

Since Fairfax offered $9 per share in its tentative bid to take the company private, the stock has been beaten down by continuing negative headlines, including the refusal of Canada’s largest wireless carrier, Rogers, to stock the just-announced Z30 in its retail outlets. BlackBerry was also challenged by confirmation of huge inventory surpluses for its Z10 model. Growing speculation last week that Cerberus Capital, a private equity firm specializing in purchasing distressed companies, might be interested in making a bid muddied the already murky waters.

Still a good deal for Fairfax

The 10-Q-provided data puts the struggling stock in a more positive context. Monga estimates any buyer would realize $2.29 per share largely from services-related revenue by simply operating the company in its current form over the next two years. Combined with the Veritas-estimated net asset value of $7.66, the final tally of $9.95 per share still represents a premium over the Fairfax $9 bid. Yesterday’s settling of a patent infringement lawsuit with Kik Interactive removes another distraction from the company’s radar.

Monga said his belief that the Fairfax deal stands a 75-per-cent chance of succeeding still holds, despite reports that major tech companies, including Cisco, Google, and SAP, have been discussing a potential deal with BlackBerry.

“I think it’s very well known that the company has been in play for over 18 months,” he said, adding this isn’t the first time these potential suitors have been discussed. “So I’m not surprised that they are being talked about again. But there’s no confirmation on any of this. It’s all speculative.”

The reports have stabilized the stock in the $8-range as efforts to find a deal intensify in advance of the Nov. 4 close of the six-week due diligence period for the Fairfax offer. Additional analyst support – Macquarie’s Kevin Smithen upgraded the stock from “underperform” to “neutral” – could boost the share further in the weeks to come.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca