Troubled smartphone maker, whose shares have plummeted in recent times, ready to be sold to Canadian buyer for $9 a share
BlackBerry, the once-dominant maker of smartphones that fell on hard times in recent years, has found a suitor willing to pay $4.7bn for the troubled company.
Fairfax Financial, a Canadian firm that already owns 10% of BlackBerry, has agreed to join forced with an unnamed consortium of other buyers to acquire the company for $9 a share.
The move would take BlackBerry private, removing it from a public listing on Nasdaq, where stocks have fallen from a high of $148 in June 2008 and now languish at about $8 a share. On the announcement, BlackBerry stock rose a modest 2% to $8.85 a share, giving the company a market value of $4.65bn.
The deal is not done, however. First, Fairfax will spend two months vetting the company's financial statements. That due diligence is expected to be complete by 4 November, BlackBerry said in a statement.
BlackBerry said it could take a better offer if another buyer appears.
The agreement, which halted BlackBerry's stock on the Nasdaq at $8.23 a share in midday trading, is only a letter of intent, which is a step below a full merger agreement. Fairfax is still "seeking financing from BoA Merrill Lynch and BMO Capital Markets," BlackBerry said, indicating that any deal is in its very early stages.
Analysts have been skeptical about BlackBerry's efforts to turn itself around, and several of them released a batch of downbeat assessments before the sale announcement.
BlackBerry announced last week that it would miss revenue estimates by a large amount, warning Wall Street that it would only record revenues of $1.6bn instead of the $3.1bn expected by analysts. The company also said it would write off about $1bn due to excess inventory of the BlackBerry 10, which suffered disappointing sales.
That announcement was greeted as calamitous by analysts, including Nomura's Stuart Jeffrey, who wrote to clients about BlackBerry's sharply shrinking revenue: "This might just be the worst miss that we have seen in 17 years of covering tech stocks."
In an effort to cut costs, BlackBerry also plans to lay off 4,500 employees.
RBC Capital Markets analyst Mark Sue told investors on Monday morning that BlackBerry "may run out of cash in 12–24 months" if it did not go through another round of layoffs. Sue said BlackBerry burned cash fast and that its patents are declining in value, as rivals slow down their interest in buying companies purely for intellectual property.
Jeffrey listed the litany of BlackBerry's ills in a note to clients last week, and particularly noted BlackBerry's difficulties in finding a suitor.
"Management has announced more headcount cuts, a further slimming down of the handset portfolio, and an exit from the consumer market. Many IT departments have started looking at BlackBerry alternatives," Jeffrey wrote in a short but critical research note.
"The board still has no update on its search for strategic alternatives. In the absence of an announcement on strategic options by the board, management can only try to manage the pace of declines."
Michael Genovese, of MKM Partners, estimated that BlackBerry's real value is only $7 a share. Of that, the company's services division is worth $5 a share, Genovese estimated, while the operating system is $1 and the intellectual property is worth another $1 a share.
"We expect BlackBerry will soon go away as a handset brand and likely as a smartphone operating system too. The brand may only remain as part of the standalone BlackBerry Messenger application before long," Genovese wrote before the deal was announced.
It's not clear whether the Fairfax agreement will be enough to answer BlackBerry's critics about the future of the company. While it shows that BlackBerry has done the work to attract a buyer – which not many analysts believed it could – the agreement is so soft that it may not provide the certainty that the market wants.
It may instead serve as a lure to other buyers, putting what Wall Street calls "a floor" on the company's value, and, in essence, starting a bidding process.
Fairfax Financial, headed by Prem Watsa, is a life insurance and investment management company based in Toronto.
Article Source : http://www.guardian.co.uk
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