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Week In Review

ECB takes ‘peashooter’ to a war, BlackBerry in ‘race against time’ Add to ...

These are stories Report on Business followed this week.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

BlackBerry deal falls through
BlackBerry Ltd. is in a "race against time" after the collapse this week of a tentative takeover deal.

The Canadian company, at one time at the top of the smartphone game, announced this week that a proposed $4.7-billion (U.S.) deal to be taken private by a consortium led by Fairfax Financial Holdings Ltd. would not go through. Instead, there would be a $1-billion sale of convertible debentures to Fairfax and other investors.

That, of course, denied BlackBerry stockholders the $9 a share proposed by Fairfax. But many doubted that was going to proceed anyway, which is why the stock traded well below that mark throughout Fairfax's due diligence. Yesterday, BlackBerry shares closed the week at $6.57, having plunged earlier in the wake of the deal falling through.

The valuations for BlackBerry are now all over the map, with one analyst's price target as low as $3 a share, though others are higher based on "sum-of-the-parts" and other measures.

BlackBerry has certainly bought itself some time, and brought in a new man to help right the ship. John Chen, the former chief of Sybase Inc., will be executive chair and interim chief executive officer.

"It's a race against time for BlackBerry and preserving cash may be of the utmost importance as the pace of business deterioration accelerates," said analysts Mark Sue and Paul Treiber of RBC Dominion Securities.

"Narrowing focus and recreating itself as a secure mobile-solutions provider are possible, but asset sales at potentially distressed prices may be necessary to fund future operations."

BlackBerry was already in the midst of restructuring and refocusing when the Fairfax deal collapsed. And, according to the RBC analysts, "in our view, short-term pain is needed to improve long-term prospects."

The ECB's peashooter
The European Central Bank surprised the markets this week by cutting its benchmark interest rate to a record low of 0.25 per cent in a battle against the threat of deflation.

With annual inflation now just 0.7 per cent, Mario Draghi's central bank trimmed the key rate by one-quarter of a percentage point. Mr. Draghi, however, sees stubbornly low inflation, rather than an out-and-out decline in consumer prices.

The 17-member euro zone, while recovering slowly from the recession and its crippling debt crisis, is still in trouble, not only threatened on the inflation front, but also facing slow economic growth and elevated unemployment.

"The ECB is faced with disinflation that threatens to turn into proper deflation and has already done so in some parts of the economic area, a lack of credit growth, a booming current account surplus, excess savings, chronic unemployment, a lack of nominal GDP growth relative to debt growth and, last but by no means least, a lack of tools to tackle any of the above," Kit Juckes, Société Générale's chief of foreign exchange, said before the central bank's announcement, though while there was speculation in the air of a rate cut.

"Mario stands in front of deflationary tanks, armed with a peashooter."

When will the Fed 'taper'?
The "taper" guessing game is popular again after two stronger-than-expected readings of the U.S. economy.

As our Washington correspondent Kevin Carmichael reports, the latest readings showed third-quarter economic growth at an annualized pace of 2.8 per cent, and jobs growth of more than 200,000 positions in July.

All of this has economists trying to gauge the timeline for when the Federal Reserve will begin to pull back on its massive bond-buying stimulus program, known as quantitative easing or QE, under which it spends $85-billion (U.S.) a month.

Remember that the U.S. central bank had been expected to begin to taper the program in September, but held off, surprising investors.

Economists then began to bet on March being the new target date, though there's some speculation it could now be earlier given the latest economic showing.

Twitter debut smooth
It's really not 1999. It's different this time, analysts say.

Such comments followed the debut of Twitter Inc., which priced its initial public offering at $26 (U.S.) a share and surged almost 75 per cent on its first day of trading on the New York Stock Exchange.

"That, plus aggressive monetary stimulus - three major central banks now sport near-zero policy rates after the ECB surprisingly eased this week - gave many a flashback to the bubbly days of 1999," said senior economist Robert Kavcic of BMO Nesbitt Burns.

"But hang on a minute. According to PWC, there were 160 U.S. IPOs through the first three quarters of 2013, up 48 per cent from the same period last year -- child's play compared to the roughly 500 that were trotted out in 1999."

Mr. Kavcic also cited the angst among some over a run-up in NYSE margin debt, which climbed 27 per cent in September from a year earlier.

"While worthy of attention, 1999 it is not - margin debt surged almost 80 per cent year-over-year at the tail end of the dot-com bubble," he said.

"Finally, there are valuations. Despite the fact that stock prices have clearly begun to outpace earnings growth, a comparison to 1999 is not even worth making."

Encana 3.0
Encana Corp. is remaking itself. Again.

As The Globe and Mail's Carrie Tait reports, Encana's new chief, Doug Suttles, unveiled a sweeping overhaul that marks the third shakeup for the natural gas giant in as many years.

Encana unveiled a deep dividend cut, a work force reduction of 20 per cent, and plans to spin out a new company as it focuses on just five oil and liquids-rich plays.

"Over all, our take on Encana's new strategy is positive as the concentration of capital for liquids and dividend rest should close the funding gap in the near term," said Credit Suisse as it boosted its price target on the company's to $21 (U.S.) from $19.

"However, we note the development risks associated with investing in newer plays ... where current production levels are low in the context of the company's total liquids production."

The week in Business Briefing

The week in Streetwise (for subscribers)

The week in Economy Lab

The week in ROB Insight (for subscribers)

Required reading
Canada's Agreement on Internal Trade will be 20 years old next year. But hold the celebration, Barrie McKenna writes, because open commerce remains as elusive as ever.

The math of home ownership simply doesn't work for some young people. Personal finance columnist Rob Carrick runs through the numbers.

Toronto condo developers are ramping up efforts to attract buyers, offering their biggest incentives yet amid a market glut. Tara Perkins report.s

Canada's crude oil discount is back with a vengeance, as pipeline congestion, recent refinery fires and increasing oil sands supply hits prices, Kelly Cryderman writes.

The introduction of two-year cellphone contracts slowed subscriber growth for some of Canada's biggest carriers during the back-to-school season, Rita Trichur reports.

Follow on Twitter: @michaelbabad

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