Everyone has known that something had to change in BlackBerry's increasingly rapid downward spiral. On Monday, that something emerged: The company has agreed to an intent-to-purchase $4.7 billion deal that would take it private.
Fairfax Financial Holdings, which already owns about 10 percent of the smartphone maker, has signed a letter of intent to pay $9 a share in cash for the company. BlackBerry said it had entered into the agreement on the advice of a Board of Directors' special committee, which had been tasked with evaluating various options, including a purchase.
Last Thursday, prior to Friday's announcement that the company would lay off about 40 percent of its workforce and report a $1 billion loss due to a write-down on BlackBerry 10 phone inventory, the company's stock closed at $10.52/share.
Not a Purchase Agreement
The letter of intent is not a purchase agreement, but gives Fairfax and its lenders an opportunity to perform due diligence to see if the deal makes sense. Between now and an actual acquisition, Fairfax will kick BlackBerry's tires. If satisfied, Fairfax will obtain financing, and then the deal must be approved by appropriate regulatory agencies. For its part, BlackBerry can talk with other possible purchasers during that time.
If BlackBerry finds another suitor during that period and ceases negotiations with Fairfax, it will need to pay Fairfax 30 cents per share, or about $157 million. Given these hurdles, a key question is why an intent-to-purchase was announced, instead of waiting until a sale deal was completed. The answer is that BlackBerry's falling stock price has meant that the longer a dramatic step was delayed, the more value the company would lose.
To back up its letter of intent, Fairfax is now soliciting financing from Bank of America Merrill Lynch and BMO Capital Markets, with Nov. 4 set as a date for completion of due diligence.
'Exciting New Chapter'
Barbara Stymiest, chairwoman of the board, said in a statement that this "go-shop process provides an opportunity to determine if there are alternatives superior to the present proposal from the Fairfax consortium."
Fairfax CEO Prem Watsa told news media that "this transaction will open an exciting new chapter for BlackBerry, its customers, carriers and employees," adding that an acquisition by Fairfax would continue "the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world."
The statement appears to point to a BlackBerry future that focuses once again on the business market, where the smartphone maker first built its reputation, and less on the consumer market that has drawn a lot of its attention in recent years.
Watsa resigned from BlackBerry's board in August as strategic alternatives were being sought by the committee, in order to avoid a potential conflict of interest, given his firm's 10 percent ownership.
On the one hand, going private means that BlackBerry, like Dell, can now make the decisions it must without having to also manage analysts' expectations or react to stock price fluctuations. But it also means BlackBerry will be competing with Apple, Microsoft, Google and others, that, among other advantages, have access to open capital markets.
Posted: 2013-10-02 @ 9:14am PT
I like blackberry actually! The new phones they got coming out are awesome! It's like to me 2nd next to an iphone and a samsung galaxy.