There's a $2-a-share gap between how much BlackBerry Ltd.'s largest shareholder believes the company is worth and where some analysts stand on the company's valuation – with investors stuck in the middle.
A week after announcing its intent to purchase BlackBerry and take the company private, Fairfax Financial Holdings Ltd. has yet to tell investors who else will join the company in raising the $4.7-billion (U.S.) necessary to complete the deal. However Fairfax chief executive Prem Watsa has repeatedly expressed his conviction that the deal will go through at the current price tag.
However, as the markets take time to fully digest BlackBerry's situation – the company posted a loss of almost $1-billion during its most recent fiscal quarter amid plunging revenue – discussion among some analysts has shifted from whether Fairfax can raise the money it needs for its proposed $9-a-share bid to whether BlackBerry is worth that much to begin with.
On Monday, two analysts issued reports that assigned BlackBerry shares a $7 price target, despite a "letter of intent" from Fairfax to purchase the belegured smartphone-maker for two dollars a share more than that.
"Given the growing [Bring Your Own Device] trend, we view a healthy consumer smartphone business as paramount for a sustainably profitable enterprise franchise," said Canaccord Genuity analyst Michael Walkley, referring to the phenomenon of employees using their personal smartphones for work purposes, rather than being assigned a different device by their employers.
Mr. Walkley said he believes BlackBerry will ultimately be sold. However he added that the most likely scenario in his view is a reduced bid of $7 a share from Fairfax, once the firm has a closer look at BlackBerry's financials as part of its due diligence.
That's the same price target proposed by Bernstein Research analyst Pierre Ferragu, who issued his own report on Monday, stating that BlackBerry's business is, for all intents and purposes, "at a strategic dead end."
Mr. Ferragu also discounted the possibility of significant interest among Canadian pension funds – rumoured to be the most likely partners in a Fairfax deal – in owning a piece of the company.
"We understand there could be some distant interest there, given the specific Canadian twist of the operation and the heavy emotional side of the operation for Canada, but we believe only one or two funds may feel confident investing that much money in such a risky venture," he said. "We doubt any financial institution outside of Canada will demonstrate any interest."
Still, Mr. Ferragu upgraded his rating of the company to "market perform," in large part because of the limited downside to the stock given its current share price, even assuming the odds of the Farifax consortium coming through with the money are roughly 50-50.
For their part, investors appear to be caught in the middle between the two valuations. On Monday, BlackBerry's stock dipped slightly to hover around the $8 mark.
Fairfax has until November 4 to conduct due diligence on BlackBerry's financials. In the meantime, however, the company's struggling smartphone business continues to show signs of weakness.
On Monday, a report from research firm Kantar Worldpanel showed BlackBerry's share of the global smartphone market continuing to dwindle. In the U.S., BlackBerrys now account for only 1.8 per cent of the market, according to the report. In the five biggest European markets, that share is 2.4 per cent, or less than half what it was a year ago.
BlackBerry also fell off an annual list of the world's top 100 brands for the first time since entering the ranking in 2008. According to the firm Interbrand, which compiles the annual list, BlackBerry's brand hit its high point in 2010, when it was valued at $6.7-billion. However the company has slid steadily down the ranking since then, in large part due to its deteriorating sales.
The top brand in this year's ranking is Apple Inc., valued by Interbrand at $98-billion, followed by Google Inc.