Canada's Fairfax offers to acquire BlackBerry in $4.7 billion deal
A consortium led by Canada’s Fairfax Financial Holdings has offered to acquire struggling smartphone maker BlackBerry.
The proposed deal, which is supported by BlackBerry’s board of directors, values the company at $4.7 billion.
Fairfax already owns about 10 percent of BlackBerry stock and would acquire the remainder for $9 per share and take the company private under the terms of a letter of intent. BlackBerry stock was trading at around $8.25 when the deal was announced.
But for the deal to be completed, the consortium has to complete due diligence. That’s expected to end around Nov. 4. Until then, the deal could still fall apart or have the terms of the acquisition changed.
The letter of intent allows BlackBerry to keep talking with other potential investors before a final deal is signed with the Fairfax consortium.
“This is probably the best possible outcome of several unattractive options for BlackBerry,” said analyst Jack Gold, of J. Gold Associates, in an email. He said the deal could give the company time to restructure and keep investors from “breathing down their neck.”
The deal would also “provide them with some financial stability so its enterprise customers would not feel compelled to replace them for fear of going out of business,” he said. Enterprise customers are important to BlackBerry and the company said last week it would focus future efforts on them rather than consumers.
“But it won’t be easy. Negative press on its situation can sometimes be a self-fulfilling prophesy, and the market may not be kind to them even if they do provide innovative products and services,” he said.
BlackBerry was once the leader of the smartphone sector. At a time when other companies were asking consumers to struggle with clunky web interfaces to email, BlackBerry revolutionized messaging with its handsets that combined an email client with a real keyboard.
But the company failed to evolve its handset range when Apple launched its iPhone and full-screen touchphones began attracting consumers. Its BlackBerry 10 operating system, released earlier this year after more than a year of delays, was an attempt to turn things around, but many analysts saw it as coming too late.
Consumers apparently feel the same way. On Friday, BlackBerry said it would take almost $1 billion in charges on unsold Z10 handsets. The Z10 was the launch flagship of the new BlackBerry 10 operating system.
BlackBerry has also dropped behind Microsoft’s Windows Phone to become number four in the smartphone market, according to the latest estimate from IDC. Google’s Android accounts for around 80 percent of the market, Apple’s iOS comes in second with 13 percent, Windows Phone at third with 4 percent and BlackBerry at 3 percent.
BlackBerry’s best bet would be to focus on secure communications for government and enterprise, with branded devices as part of its portfolio, said analyst Roger Kay of Endpoint Technologies Associates. But as a financial company, Fairfax probably would be open to a breakup if that offered the best return, he said.
Fairfax’s likely intent is to turn the company around for sale to a strategic partner, Kay said. That might take the form of an enterprise IT giant such as Oracle or Hewlett-Packard, which could make BlackBerry part of a larger security and mobile play.
If Fairfax plans to keep the company together, it should say so, said analyst Avi Greengart of Current Analysis. Microsoft did the right thing earlier this month when it announced plans to buy Nokia and expressed a clear commitment to the company and its devices, he said.
Unfortunately, it’s not yet clear why Fairfax wants to buy BlackBerry or what it plans to do with the company, Greengart said. Taking the company private would stop the decline in its stock price, but not much else, he said.
“This is not a company that’s coming in with new distribution, new technology, new management, new marketing,” Greengart said.
Fairfax might sell BlackBerry whole, narrow its focus to mobile device management or break it up into pieces that other vendors might want, he said.
Whatever Fairfax’s plans may be, BlackBerry is due for a new CEO, Endpoint’s Kay said.
“Thorsten Heins is probably out within the week,” he said. After a weak launch of the BlackBerry 10 OS earlier this year and the $1 billion Z10 writedown, Heins has proved he doesn’t get it, Kay said.
Greengart said Fairfax might keep Heins on board while selling off parts of BlackBerry, a strategy Heins has already carried out in some areas. But at BlackBerry, “I don’t think anybody’s job is secure,” he said.
Updated again 9/23/2013 at 1:30 p.m. PDT