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The BlackBerry deal: ‘This is a take-under but at least they got one bid’ Add to ...

These are stories Report on Business is following Monday, Sept. 23, 2013.

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BlackBerry strikes deal
You can open your eyes now: BlackBerry Ltd. has struck a tentative deal to sell itself to a consortium led by its biggest shareholder, Canada’s Fairfax Financial Holdings Ltd.

Under the proposal, a Fairfax-led consortium would buy the embattled smartphone maker for $9 (U.S.) a share, above the price before a halt today but well below where the shares stood before they began to melt down on Friday, when the company unveiled a massive second-quarter loss.

And, of course, it’s a far cry from the heady days of mid-2008, when BlackBerry ruled the industry and the stock topped $145.

As analyst Todd Coupland of CIBC World Markets put it just a few hours before today’s deal was announced, Friday’s earnings shock “clears the way for a buyer to get a material discount on BlackBerry’s assets.”

As The Globe and Mail’s Tara Perkins reports, Prem Watsa’s Fairfax, which already holds about 10 per cent of BlackBerry, struck a $4.7-billion all-cash deal for the company. Fairfax will put its stock into the transaction, and BlackBerry has until early November to seek out a better bid. The Fairfax proposal puts a floor on a buyout price. There were no details of members of the proposed consortium.

“We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees,” Mr. Watsa said in a statement.

“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."

Don't forget the patents BlackBerry holds, or its $2.6-billion in cash.

Earlier in the day, BlackBerry stock continued to sink on Nasdaq, deepening a rout that began Friday after it projected a second-quarter loss of almost $1-billion, largely related to a huge charge on unsold BB10 devices. BlackBerry also unveiled plans to slash 4,500 jobs. BlackBerry shares bounced up after today's announcement, gaining more than 1 per cent to $8.82.

Here’s what analysts are saying in the wake of the deal:

“Based on the company’s disastrous earnings warning on Friday, I think a deal had to happen and the sooner the better. This is probably the only out for investors and the most likely outcome. The benefit to this sort of takeover is the ability for BlackBerry and the consortium to reinvent the company without public scrutiny … It appears that the end game is going to be whether BlackBerry can emerge as a niche supplier of highly-secured phones to enterprise customers and governments. There’s $9-a-share price and $5 of $9 is cash on hand at this point, so we think this is a reasonable price to take over the company just based on cash on hand plus patents.” Brian Colello, Morningstar, reported by Reuters.

“Most importantly, in our opinion, is that the acquiring group has yet to obtain financing for the $4.7-billion deal. In our view, it will be difficult to raise financing due to high cash burn and large subscriber losses. We think that Fairfax will need to fund this with $2-$3-billion in debt given BBRY's cash burn … We believe the onerous break-up fees of 30 cents per share at [letter of intent] stage and 50 cents per share assuming a definitive agreement is signed could scare away other potential bidders. We caution investors that the Fairfax bid still has a funding contingency and if a deal is not consummated, we believe the shares could trade down to our $7 target.” Kevin Smithen, Zach Horat, Macquarie Capital.

“What’s the right price? I guess it’s a case of beauty is in the eyes of the beholder here. The tougher part will come for them, to right the ship. To a certain extent, the good news for BlackBerry enterprise customers should be that there’s a financial backing here and they need not worry about the platform going away, at least not immediately. It’s going to be very difficult to turn this around. What Blackberry was known for, with its best-in-class messaging system with better security, is not really true anymore. (Apple’s) iOS delivers all of that and more companies have already figured how to do that in the cloud. So the cow has left the barn already.” Daniel Ernst, Hudson Square Research, reported by Reuters.

“This is a take-under but at least they got one bid. This is a company that needs to go private if they have any chance. They’d be able to restructure outside of the public eye, take a long term view, and run the company at break even. It’s better than being broken up into pieces." Colin Gillis, BGC Partners, reported by Reuters.

“What it means is that BlackBerry shareholders should be happy, they should sell and take their money. In the short term, the Fairfax offer saves BlackBerry the embarrassment of a public market flogging. The longer term, we’ll have to see what happens.” Neeraj Monga, Veritas Investment Research, reported by Reuters.

“I would think a competing buyout offer is quite unlikely. The minuscule premium and the muted market reaction is another indication that the market views the odds of a competing bid as slim.” Elvis Picardo, Global Securities, reported by Reuters.

“This is probably the best possible outcome of several unattractive options for BlackBerry. Going private and potentially bringing back the founder of the company, Mike Lazaridis (as has been rumored) could buy them some time to put the house in order. They would be a much smaller player, but being private would mean that Wall Street is not continuously breathing down their neck.” Jack Gold, Gold Associates, reported by Reuters.

Apple sets record
Amid BlackBerry’s troubles, Apple Inc. has set something of a milestone.

The tech giant said today it broke records with sales over three days of 9 million of its new iPhone 5S and 5C, sending its stock climbing about 5 per cent to $490.64 (U.S.).

As well, it said, more than 200 million devices are now running on the new iOS7 operating system released last week.

The sales figures are, of course, a good sign for Apple amid questions over its ability to still lead the way in mobile innovation and amid competition from Samsung, whose Galaxy is popular, and phones running the wildly popular Android system from Google Inc.

“The demand for the new iPhones has been incredible, and while we’ve sold out of our initial supply of iPhone 5S, stores continue to receive new iPhone shipments regularly,” said chief executive officer Tim Cook.

Given that, Apple also said that fourth-quarter revenue would be near the top end of its projection of between $34-billion and $37-billion.

Foreign players to stay out of auction
No foreign telecom carriers plan to participate in the Canadian government’s upcoming auction of wireless spectrum, but two private-equity firms, Birch Hill Equity Partners Management Inc. and The Catalyst Capital Group Inc., have signed up to bid, The Globe and Mail's Rita Trichur reports.

Industry Canada released its long-awaited list of applicants today before the open of financial markets. In total, 15 names appeared on the list, none seemingly associated with any large foreign telco.

Industry players have been anxious to know if any foreign telecom carriers applied after U.S.-based Verizon Communications Inc. nixed its plans for a Canadian expansion.

The stakes are high. The 700 megahertz frequency represents the most valuable air waves that have ever come up for auction and the outcome of this auction could shape the industry for the next 30 years.

Agrium warns on prices
Agrium Inc. is boosting its dividend by half even as it warns of a hit to its third quarter.

The Canadian agribusiness giant said today it plans to hike the dividend by $1 (U.S.) to $3, annualized, as part of its strategic review and amid “the strength in the long-term agriculture fundamentals and the benefits of our integrated model," The Globe and Mail's Bertrand Marotte reports.

It added, however, it expects “soft” nutrient prices and lower sales volume to hurt, with wholesale earnings before interest and taxes to fall by $200-million from a year earlier. Retail EBIT, though, is expected to top last year’s.

“Despite short-term headwinds for our wholesale business unit this quarter, the long term fundamentals of our business remain strong and we expect significant crop input demand as we move into the fall season,” said chief executive officer Mike Wilson.

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