BlackBerry puts up 'for sale' sign, with Fairfax emerging as potential buyer

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BlackBerry Ltd., the technology company from Waterloo, Ont., that changed the way millions of people work and communicate, has put itself up for sale, a victim of rapid change in an industry it helped create.

One of Canada's best-known investors has emerged as a potential buyer. Executives at Fairfax Financial Holdings Ltd., an investment company controlled by Prem Watsa, are exploring ways to put together a group to acquire the company, according to sources. Fairfax owns nearly 10 per cent of the smartphone maker and is its largest shareholder.

BlackBerry effectively created the smartphone industry with the introduction of phones capable of sending and receiving messages wirelessly.

As it grew to a multibillion-dollar powerhouse, the company sparked the rise of Waterloo as Canada's new technology capital, creating thousands of jobs.

But its fortunes started changing with the advent of consumer-focused smartphones – in particular, Apple's iPhone.

Consumers flocked to the new phones, on which they could play games, watch videos and perform myriad other tasks that BlackBerrys were never designed to do.

As the market shifted, BlackBerry was slow to switch its focus from corporate clients to everyday consumers. The company's market share and stock price have been falling for the past four years.

The decision to hire legal and financial experts to help the company complete a strategic review is the most drastic move by BlackBerry since it installed German executive Thorsten Heins to replace long-time CEOs Jim Balsillie and Mike Lazaridis 18 months ago. Mr. Heins laid off thousands of employees and oversaw the launch of a line of wireless devices operating on a new operating system, dubbed BlackBerry 10, this year.

Monday's announcement is the strongest indication yet that BlackBerry's multiyear turnaround plan is not working. Sales of the new phones, including the high-end Z10 and Q10 phones, have not met analyst expectations, and BlackBerry's share price was once again in free fall after the company released a subpar earnings report in June.

Last week, a report from International Data Corporation pegged BlackBerry's share of the global smartphone market at just 2.9 per cent in the second quarter of this year, compared to 4.9 per cent in the same period last year.

Although many options are on the table, the most likely outcome of the strategic review appears to involve taking the company off the public market. Any bid by a foreign buyer would be subject to approval by the federal government, forcing it to decide whether the deal is in the national interest. A number of non-Canadian companies, including Microsoft Corp., have expressed interest in BlackBerry in the past, but none has ever publicly tabled an acquisition or merger proposal.

Industry Minister James Moore had a little to say on the matter. "We wish RIM well, however, we do not comment on speculation," said a spokesman from his office.

In addition to an investment bank and two law firms, BlackBerry is also working with Hill & Knowlton, a lobbying firm that has experience in trying to obtain federal approval for major foreign takeovers. Hill & Knowlton has worked on the proposed sales of Potash Corp. of Saskatchewan Inc. and Nexen Inc. to foreign interests, failing to win the public-relations case on the first file and succeeding on the second one.

Fairfax's Mr. Watsa resigned from the BlackBerry board Monday. There was no disagreement between Mr. Watsa and the board, and all parties involved would have liked him to remain a director, according to sources. But Mr. Watsa stepped down to avoid criticism that he was in a conflict of interest.

Fairfax is holding talks with a number of private equity and industry players who might be interested in participating in a buyout, according to people familiar with the situation. Mr. Watsa has indicated to them that his firm intends to retain its stake in BlackBerry, and feels that the market is undervaluing the firm.

BlackBerry has a market capitalization of about $5.8-billion. It had nearly $3-billion in cash and short-term investments as of June 1 and no debt.

Sources indicated that at the same time Fairfax speaks to potential partners about ways to make BlackBerry private, the board and its bankers will be canvassing the market for other alternatives.

By going private or finding a buyer, BlackBerry can avoid the scrutiny of the public market as it tries to reinvent both its smartphone line and its services business.

"They got [BlackBerry 10] out the door, and they saw initial sales," said BGC Financial analyst Colin Gillis. "If you're putting yourself up for sale you're probably missing your targets and you're [saying], 'I've got to do something, I have to turn this around.'"

This isn't the first time BlackBerry has formally announced it will explore "strategic alternatives." It did so last year, but did not form a committee. At the time, the company's share price was hovering around $7 – it's lowest mark in roughly nine years. After Monday's announcement, BlackBerry shares closed at $11.10 in Toronto, up 10.5 per cent.

BlackBerry's five-person committee, which includes Mr. Heins and is led by an executive at U.S. private equity firm TPG Capital, will look at a host of options, such as joint partnerships or alliances with other companies, in an attempt to increase shareholder value and boost sales.

"During the past year, management and the board have been focused on launching the BlackBerry 10 platform … establishing a strong financial position, and evaluating the best approach to delivering long-term value for customers and shareholders," said Timothy Dattels, chairman of BlackBerry's new committee. "Given the importance and strength of our technology, and the evolving industry and competitive landscape, we believe that now is the right time to explore strategic alternatives."

With reports from Daniel Leblanc and Sean Silcoff