These are stories Report on Business is following Monday, Nov. 4, 2013.
Shares of BlackBerry Ltd. plunged today after the death of a tentative deal to sell the embattled smartphone maker to Canada’s Fairfax Financial Holdings Ltd.
The stock fell about 14 per cent by midday on Nasdaq, to $6.69 (U.S.).
In a stunning development, as The Globe and Mail’s Boyd Erman reports, BlackBerry has scrapped plans for an auction, and will, rather, raise $1-billion in new funds by selling convertible notes to a group of investors that includes Fairfax.
At the same time, chief executive officer Thorsten Heins will leave, and John Chen, the former chief of Sybase Inc., will be appointed executive chair of the board, responsible for the company's "strategic direction, strategic relationships and organizational goals."
He will be interim CEO when Mr. Heins leaves.
Fairfax chief Prem Watsa becomes the "lead director."
Analysts began taking a fresh look at BlackBerry’s prospects given the collapse of the deal.
Kris Thompson of National Bank Financial, for example, cut his price target on the shares to $3 from $9 in a research report that noted “turnaround attempt number three not a charm.”
Analyst Michael Walkley of CanaccordGenuity cut his price target on the shares to $6 from $7, saying he believes BlackBerry will not attract a buyer that would keep the company intact.
“While we maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability, we now believe a breakup is more likely than an outright sale and fundamentals will continue to deteriorate over a now-longer public sale process under new management,” he said in a research note today.
Mr. Watsa, however, told The Globe and Mail's Sean Silcoff the aim is still to keep the company whole, while Mr. Chen said that "I think we're going to build tremendous value for shareholders."
There are still other options. BlackBerry could, for example, sell its patents, chief investment officer Jack Ablin of BMO Private Bank told Bloomberg News.
“Looks like doors are closing on BlackBerry and they are going to be looking at fewer options,” he said.
Analyst Gus Papageorgiou of Bank of Nova Scotia also noted the recent success of BlackBerry's free BBM chat service, which has become a hit on iPhone and Android-powered devices, as well and has some 80 million users.
"The company has not announced how it plans to monetize BBM aside from suggesting an advertising-based model," he said.
"In the near term we believe BBM could likely generate around $300-million/year in mobile ad revenue, similar to where we believe Twitter is."
Fairfax had signed a letter of intent to lead a consortium that would take BlackBerry private for $4.7-billion, or $9 a share, and had until today to complete its due diligence.
As its shares sank, both the company and Mr. Watsa put a positive spin on the development.
"Today's announcement represents a significant vote of confidence in BlackBerry and its future by this group of preminent, long-term investors," said chair Barbara Stymiest.
"The BlackBerry board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders," she added.
"This financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing our substantial cash position."
Mr. Watsa, in turn, said Fairfax is a "long-time supporter, investor and partner" where BlackBerry's concerned.
It had not been alone in its interest. Also eyeing the company was a group that included BlackBerry co-founders Mike Lazaridis and Doug Fregin, U.S. private equity firm Cerberus Capital Management and chip maker Qualcomm Inc.
BlackBerry shares have traded below the $9 mark since Fairfax, which owns 10 per cent of the company, unveiled its original proposal. The markets had been skeptical all along that a deal would be done at that price, and the skepticism now proves well founded.
Here's what analysts are saying today:
“We are reverting to our fundamental thesis and lowering our target price to reflect a $1-billion debenture issue that is in priority to stock holders. Prior to the Fairfax take-private attempt we had a $5/share target price and a fundamental thesis that the subscriber base and shipments were about to head into a free-fall. Now there is about $2/share of debenture interest ahead of equity holders. There are no positive catalysts on the horizon short of a surprise take-private bid.” National Bank’s Mr. Thompson
“Now we’re back to the downward spiral. They’ve got $1 billion more cash that buys them time. The drumbeat of negativity is likely to continue.” Colin Gillis, BGC Partners, from Reuters
“The appointment of enterprise software veteran John Chen, former CEO of Sybase, as chairman and interim CEO of BlackBerry suggests that Fairfax and others see the company’s future in software rather than devices. This makes sense in light of BlackBerry’s sputtering device shipments over the past few months, but it’s still not clear where that growth will come from.” Jan Dawson, Ovum
“The important thing is, what is the strategy? They have a chance, and they have a little more runway with the additional cash, but they need to start making some smart decisions … This is a little disturbing given all the talk of interested bidders. I’ve always thought going private would be the right step for them.” James Moorman, S&P Capital IQ, to Bloomberg
“Will Blackberry survive? If so, what will they look like and will they be successful? Right now there are no real answers for Blackberry. That is a very uncomfortable place to be for investors, customers, workers and partners.” Technology analyst Jeff Kagan, from Agence France Presse
“It would have been so much simpler for them to just accept a cheque from a large suitor and be bought out. They already admitted a year and a half ago they couldn’t go it alone; now they have to go it alone. There’s no good news in this story at this point. It adds an additional layer of challenge to a company that didn’t need it.” Technology analyst Carmi Levy, from The Canadian Press
“The fact that the share price is so depressed is really again a reflection of the fact there is very little confidence at this point in the story from the market in terms of BlackBerry’s ability to really turn things around in short order. It’s going to be more of a show-me story. BlackBerry is going to have to prove that their new strategy is viable.” Craig Fehr, Edward Jones, from The Canadian Press
- Complete coverage of BlackBerry
- Boyd Erman: BlackBerry-Fairfax deal dies, Thorsten Heins out
- Sean Silcoff: Who is John Chen, the man named to rescue BlackBerry?
- Janet McFarland: Heins's golden handshake could be as much as $22-million
- Video: Jacqueline Nelson and Hanna Sung on Blackberry's dramatic shift in direction
- BlackBerry boasts of 'smashing success' with 20 million new BBM users
- Molly's back on BBM: Why BlackBerry's 'forbidden fruit' is such a hit
- Google's Android grabs 81% of smartphone market as BlackBerry, Apple slip
- Explainer: How does the wildly popular BBM differ from regular text messaging?
- Sean Silcoff, Jacquie McNish and Steve Ladurantaye: An exclusive report on the fall of BlackBerry
- Boyd Erman in Streetwise (for subscribers): BlackBerry's noisy auction: The unspoken truth
- How BlackBerry lost World War Z
Twitter boosts price
Twitter Inc. has raised the price of its hotly-awaited initial public offering.
In documents filed today with the Securities and Exchange commission, Twitter said it now projects a range of between $23 (U.S.) and $25 each in its planned offering of more than 70 million shares.
Underwriters can also buy an additional 10.5 million shares.
That price range is a hike from up to $20 earlier.
Twitter will begin trading under the symbol TWTR on the New York Stock Exchange on Thursday.
- Twitter boosts IPO range to $23 to $25.
- Omar El Akkad: Twitter’s IPO: Terrific growth, but is it worth $11-billion?
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Shares of Kellogg Co. climbed today after the food giant unveiled its third-quarter results and an overhaul that will slash 7 per cent of its global work force.
Kellogg said today its sales for the quarter dipped slightly to $3.72-billion (U.S.), while profit rose to $326-million or 90 cents a share from $318-million or 89 cents a year earlier.
The company also announced what it dubbed “Project K,” a “four-year efficiency and effectiveness program” that includes cutting jobs and is expected to save up to $475-million a year by 2018.
“We are making the difficult decisions necessary to address structural cost-saving opportunities which will enable us to increase investment in our core markets and in opportunities for future growth,” said chief executive officer John Bryant.
“These actions will set a foundation for our Sustainable Growth operating principle."
Pre-tax charges are expected to be between $1.2-billion and $1.4-billion.
Key this week
This week promises to be an interesting one in the markets, both on the corporate and the economic fronts.
Besides Twitter beginning to trade Thursday on the New York Stock Exchange, BCE Inc. and Telus Corp. report third-quarter results, which, as Rita Trichur writes, will shed more light on the battle for wireless subscribers.
Also reporting quarterly results this week are, as Jacqueline Nelson reports, Canada’s major life insurers, as well as the two big airlines, Air Canada and WestJet.
Worth watching, too, are Tesla Motors results tomorrow given the high-flying nature of its shares.
Where the economy’s concerned, we’ll get key readings from the United States on how the economy fared in the third quarter, and how the labour market performed in October. The former comes Thursday, the latter on Friday.
“The data out this week are likely to show the economy slowed in Q3, in part because of rising fiscal uncertainty, and got off to a slow start in Q4, largely because of the government shutdown and lingering concern about another political showdown in the New Year,” said senior economist Sal Guatieri of BMO Nesbitt Burns.
Statistics Canada will also be reporting on the Canadian jobs market, also on Friday.
“RBC Economics is looking for the pace of employment gains to clock in at 12,000 in October, virtually unchanged from September,” said economists at Royal Bank of Canada.
“In terms of the composition, goods-producing sectors (+7,000) are expected to fare slightly better than services (+5,000), and a 25,000 advance in the labour force is expected to help nudge the unemployment rate higher to 7 per cent,” they added.
“In addition, this report will warrant some scrutiny for any signs of spillover impact from U.S. fiscal deliberations, which may have weighed on hiring activity during the month.”
Then there’s the key European Central Bank meeting, along with that of the Bank of England, on Thursday.
“European Central Bank president Mario Draghi has been outrageously positive recently, regardless of what EU economic data has been thrown his way,” said market analyst Alastair McCaig of IG in London.
“With figures seeing a recent downturn, however, it is likely that it will take more than just his willpower to maintain momentum. Speculation has intensified that either a cut in interest rates or, more likely, a relaxation of regulations will be required to assist mainland Europe.”
- Omar El Akkad: Twitter’s IPO: Terrific growth, but is it worth $11-billion?
- Rita Trichur: Telus, Bell third-quarter results to provide litmus tests for industry
- Tavia Grant: Jobs report likely to show Canada’s labour market ‘on the mend’
Streetwise (for subscribers)
ROB Insight (for subscribers)