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Sale of BlackBerry could fetch $14 to $20 a share, analysts say

These are stories Report on Business is following Tuesday, Aug. 13, 2013.

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Whither BlackBerry
A sale of BlackBerry Ltd. could fetch up to between $14 (U.S.) and $20 a share for long-suffering stockholders of the smartphone maker, particularly in a "competitive" bidding process, analysts believe.

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The valuations vary, and some, though not all, rule out industry suitors, betting on a "going-private" deal instead.

But the bottom line is that a takeout of the embattled company could yield a premium that's 30 per cent or better, according to their calculations.

BlackBerry shares continue to gain today.

To recap, BlackBerry announced yesterday it has struck a special committee to pursue options, which could involve anything from a joint venture to a partnership to the sale of the company.

Prem Watsa of Fairfax Financial Holdings Ltd., BlackBerry's biggest shareholder, quit the board "due to potential conflicts that may arise during the process."

Indeed, Fairfax is studying ways to take the company private, and Stuart Jeffrey of Nomura Securities in New York, for example, believes the "going-private" route is a logical one.

"If management's optimism remains high and Fairfax is part of a group of potential bidders, then any takeout price/take-private price could come at a more compelling premium than seen recently at Dell … where management has focused on the challenges facing the company rather than the opportunities," he said.

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"We struggle to come up with a reasonable takeout price for BlackBerry, given the extensive restructuring likely needed to create a successful services/applications company, the risk of this going wrong, and the potential for synergies if there is some partnership with a strategic partner."

BlackBerry has 72 million subscribers, some $3-billion in cash and an estimated $3-billion in patents and licences. In the first quarter, sales of the new BB 10 smartphones, at 2.7 million, failed to meet the projections of analysts.

Analyst Gus Papageorgiou of Scotia Capital believes BlackBerry could fetch more than $14 a share.

And unlike some of his peers, he's not ruling out some type of deal with an industry player such as IBM, Ericsson, Cisco, Oracle, Samsung, and perhaps even Apple.

"By partnering with one of these larger players we believe BlackBerry's platform gains credibility," Mr. Papageorgiou said in a research note.

"Currently, we believe the company's technology is very sound; however, its tarnished brand and lack of credibility are holding back the adoption of its newly established services. A strong partner, we believe, could act as a catalyst to these services."

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Here's how he breaks it down: BlackBerry's net cash is worth $5.90 a share, and its patents an estimated $4.26. While he sees no bidder or partner paying anything for the actual handset operation, he values the services revenue and QNX system at $4 a share.

"Together with the patents and cash we believe a bid of roughly $14.20 is achievable," Mr. Papageorgiou said.

An analysis by Raymond James Ltd. believes a going-private deal could bring $14 (U.S.) a share, assuming EBITDA, or earnings before interest, taxes, depreciation and amortization, can rise again, "which is an open question given current BB 10 trends and services revenue decline."

Todd Coupland of CIBC World Markets has a far higher value on the company, pegging it at at least $20: Cash at $5.86 a share, patents and those pending at $4, real estate at $1.31, and five years of cash flow from its services operation at $10. But to get to $20 you'd need some "competitive tension in the process," Mr. Coupland said in an interview.

"Likely candidates would be another mobile company looking to either grow I enterprise and government, such as Apple or Samsung, one looking to increase/enter the smartphone market (Amazon, Dell, HP) or a company looking at BBM as a social media tool, such as Facebook," Mr. Coupland said in his research note.

"Another real option would be an attempt to take BlackBerry private," he added, citing Fairfax as just one possibility.

Nomura's Mr. Jeffrey, in turn, sees a wide range in a takeout deal.

"BlackBerry's current market cap is $5.1-billion," he said.

"The company does have $3.1-billion in net cash. If management can restructure without using no more than $1-billion of this, then a possible valuation of $6.3-billion to $7.7-billion seems feasible – equivalent to $12 to $15 per share."

Unlike Mr. Papageorgiou, though, some other analysts see no interest by industry players, counting instead on a Fairfax or a Silver Lake Partners in some for another.

Several names have been bounced around in terms of an industry player that might be interested in taking a run, from Google Inc., Apple Inc. and Microsoft Corp., to Huawei and Inc.

But some analysts rule out such a deal.

"We believe that there are few potential suitors given the challenge of turning around the company as fundamentals deteriorate," said Credit Suisse analyst Kulbinder Garcha.

"We believe that any potential suitor would face the costs of needing to execute a meaningful restructuring," they added in a research note after the decision was announced.

"Amazon, Facebook, Microsoft, Huawei or [private equity] buyers stand out as the most likely acquirers though each have cause for concern."

Nomura's Mr. Jeffrey, seeing few potential buyers for BlackBerry as the company now stands, having fallen from grace amid fierce competition from Apple Inc., and its iPhone and iOS operating system, and Google's Android system.

"In our view, the best possible long-term outcome for BlackBerry is to cease hardware production for the consumer market and to adapt all its applications to work on iOS and Android, and so become an almost pure service/application provider of corporate cloud applications," he said.

"We believe that this would be a difficult and painful transition and one that might be best suited to a company that is private rather than publicly listed."

That could mean players such as Fairfax or Silver Lake Partners in some form or another.

U.S. sues to block airline deal
U.S. authorities are trying to block the $11-billion (U.S.) merger of AMR Corp., the parent of American Airlines, and US Airways Group Inc., warning the deal would hurt competition and lead to higher fares.

The U.S. Justice Department filed suit today, a day before a hearing in bankruptcy court to approve AMR's restructuring, whose focus is on the deal.

Six states are involved in the suit.

The Justice Department said in a statement that "the merger, which would result in the creation of the world's largest airline, would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher airfares and receiving less service."

The suit, added Attorney General Eric Holder, shows "the American people deserve better."

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