Prem Watsa, the man behind an aborted takeover of BlackBerry Ltd., said his Fairfax Financial Holdings backed off his $9 (U.S.) per-share bid after determining it was a mistake to saddle the company with high-yield debt under a planned leveraged buyout.
Mr. Watsa also reiterated that he wants to build, not split up the company.
"We looked at it and said, 'Hey, a high-debt situation was not appropriate,'" he said in an interview with the Globe and Mail, adding that insight was gleaned by his advisers during a due diligence that began after the company tabled a conditional offer in late September.
Instead, Fairfax, which owns 9.9 per cent of the stock, is leading a $1-billion (U.S.) convertible debenture financing, putting up one-quarter of the amount itself. The debt can be converted into 16 per cent of the company's stock and will pay 6 per cent interest in the meantime. As part of his plan, he has recruited former Sybase CEO John Chen to join the company as executive chairman and to replace outgoing CEO Thorsten Heins on an interim basis.
"We wanted to take the 'For Sale' sign down, get John Chen as executive chairman as soon as we could and finance it for the long-term," Mr. Watsa said. "That's effectively what we've done."
Fairfax's decision to back off its proposed purchase comes amid revelations that a rival consortium was nowhere near tabling a bid by Monday, the deadline for Fairfax to complete its due diligence on the deal, a source familiar with the consortium said. The consortium, composed of buyout firm Cerberus Capital Management, company co-founders Mike Lazaridis and Doug Fregin and semiconductor maker Qualcomm – a major BlackBerry supplier – had entered into talks late last week, but "there was a lot of work to be done," before deciding to proceed on a bid, the source said.
Mr. Watsa revealed his financing plan is intended to offset a "cash burn" that is expected to last for the next four to six quarters, depleting the company's $2.6-billion in cash and investments as of Aug. 31, and acknowledged the uncertainty stemming from the sale process had hurt the company's business.
"Why would you buy a BlackBerry system or a BlackBerry phone if you think the company is not going to survive? Well, that's out. BlackBerry is here to stay," he said, adding "There's no question" the very public strategic review and uncertainty around it hurt the company's business prospects.
"Convertible debt at 6 per cent is just the appropriate financing," Mr. Watsa said. "This financing will help us go through that [cash burn period] and for John to have the financial soundness to build this company over time."
Mr. Watsa stepped off the BlackBerry board in August as the company announced it was pursuing a strategic review, and told the Globe in late September he had more than enough financing to complete the bid. On Monday, he insisted that cobbling together financing for the proposed $4.7-billion takeover "was not a problem," although sources familiar with the situation have told the Globe and Mail that securing financial backing was a struggle. "We've, over 28 years, whenever we thought something was a good idea, been able to raise the money," Mr. Watsa said.
Mr. Watsa dismissed the market's hostile reaction to the deal's collapse, saying "I've been in the market 40 years. If you decide to make a judgment on what the market thinks for every half an hour, that would be very inappropriate."
In a brief interview, Mr. Chen said BlackBerry had "different buckets of good assets," including its business serving corporate and government customers, its secure network, its patent portfolio, BlackBerry Messenger instant messaging service and software developed by its QNX division that enables machines to communicate with each other wirelessly, such as systems in automobiles that can interact with dealerships. "We have all the ingredients to become the leader in that embedded machine-to-machine space," he said. "I figure with our focus and [by thinking] long term, do the right thing today, a step at a time, I think we're going to build tremendous value for shareholders."