BlackBerry Ltd. BB-T, which has struggled to regain investor interest since the demise of its smartphone business, is exploring a potential breakup of the company.
The Waterloo, Ont.-based company said in a release late Monday its board is initiating a review of its portfolio of businesses to explore strategic alternatives that “include, but are not limited to, the possible separation of one or more of BlackBerry’s businesses.” The company has hired investment banks Morgan Stanley & Co. and Perella Weinberg Partners as financial advisers but has not set a timetable for completing the process.
Its stock closed up 9.3 per cent on the NYSE.
The move appears to be an attempt to appease investors leading up to its June 27 annual meeting. Last year, lead director Prem Watsa, whose Fairfax Financial Holdings Ltd. owns 8 per cent of BlackBerry stock, was narrowly re-elected with just 50.7 per cent of votes cast in his favour. Since then, British hedge fund Fifthdelta Ltd. has made a big move into BlackBerry stock, buying 57.9 million shares, or 9.98 per cent of the total, according to regulatory filings. Fifthdelta has made other investments in the internet-of-things space, suggesting it is interested in BlackBerry’s connected car business.
Fifthdelta spokesperson Tio Charbaghi said in an email “We are very supportive of management’s actions. We see the opportunity to unlock material value on the back of the strategic review
This is a pivotal year for BlackBerry: The company recently announced the sale of most of its legacy smartphone-related patents to Dublin’s Key Patent Innovations. That ended a period of several years in which BlackBerry generated hundreds of millions of dollars in high-margin revenue extracting licensing fees from other companies for alleged use of its intellectual property.
It was the second attempt to sell most of its IP after a failed effort last year. Key paid US$170-milllion in cash up front and the deal could be worth up to US$900-million to BlackBerry depending on the new owner’s success in pursuing further licensing deals.
BlackBerry chief executive officer and executive chairman John Chen is also coming to the end of a five-year employment contract this fall and the company also faces repayment of US$365-million in debentures coming due this fall.
Mr. Chen is into his 10th year as CEO, a period marked by two phases: He was successful in transitioning the company completely out of the smartphone business and cutting costs while securing its future as a continuing company. He was aided by billions of dollars in legacy high-margin service fee revenue negotiated by his predecessors with carriers when BlackBerry handheld devices were in hot demand, and which continued to pour in for years – albeit at a steadily declining rate – as customers continued to use its aging devices.
BlackBerry is promising pickup in financial results this year after muted first quarter
But BlackBerry’s share price has languished for years – except for a brief spike when it became a “meme stock” – and the stock is trading at roughly the same level as two decades ago, when the device business was still young.
BlackBerry is a hodgepodge of different businesses: It is a provider of in-car software to connect vehicles to the internet. It also sells cybersecurity software and provides device management software used by corporations to manage the fleets of devices used by their employees. Along with its patent-licensing business, it was an odd duck of a company with no peers in terms of its eclectic mix of businesses.
The cybersecurity business, largely a collection of companies purchased by BlackBerry over the years, has been a disappointment. It has delivered far less growth than expected. BlackBerry is a leader in the device management business, but it is a crowded, mature niche sector.
The company’s jewel is its connected-car business, managed out of its QNX division in Ottawa. BlackBerry bought QNX in 2010 and the division is expected to deliver 20-per-cent annual growth for several years, including revenue of US$240-million to US$250-million this year. Its technology is in 215 million-plus cars, used by all 10 of the world’s largest automakers. By comparison, the cybersecurity business, which encompasses its device management service, is expected to grow by up to 7.7 per cent this year.
While the connected-car business delivered near-record revenue in BlackBerry’s fourth quarter ended Feb. 28, cybersecurity revenue dropped by 28 per cent year over year. That dragged on the company’s revenue, which came in at US$151-million for the quarter, lower than expected. The company also booked a net loss of US$495-million, mostly owing to writedowns to goodwill and long-lived assets.
Mr. Chen said in a statement Monday that while the company expects to deliver revenue and earnings growth this year, “we do not believe that this is fully reflected in the market’s current valuation of the company.” That makes this “an appropriate time” to “identify and evaluate opportunities to further enhance shareholder value.”
Editor’s note: The spelling of Perella Weinberg Partners has been corrected in the online version of this story.