BlackBerry Ltd. said Monday that Fairfax Financial Holdings Ltd. has signed a letter of intent to buy the company for $9 per share in cash and take it private. The tentative deal comes days after the Canadian company announced plans to lay off 40 percent of its workforce. The offer price is below what the company had been trading at before the layoff announcement.
Analysts say that although BlackBerry’s hardware business is not worth anything, it still owns valuable patents. Patents on wireless technologies have exploded in value in recent years, as device makers sue each other. Having a strong portfolio of patents allows phone makers to defend themselves and work out deals.
BlackBerry is also strong in having total cash and investments of about $2.6 billion, with no debt, though it’s burning through that stockpile. In just the past few months, it’s spent about half a billion dollars.
BlackBerry was once Canada’s most valuable company, with a market value of $83 billion in June 2008. The stock has plummeted from more than $140 a share to less than $9, giving it a market value of $4.6 billion, just short of Fairfax’s offer.
BlackBerry shares plunged 17 percent Friday after the company announced a quarterly loss of nearly $1 billion and layoffs of 4,500 workers. It gained 9 cents, or 1.1 percent, to $8.82 Monday.
Fairfax head Prem Watsa, who owns 10 percent of BlackBerry, stepped down as a board member because of potential conflicts when BlackBerry announced it was considering a sale last month. If the proposed deal goes through, BlackBerry will no longer be traded publicly.
“We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company,” Watsa said in a statement.
Watsa is one of Canada’s best-known investors and is the billionaire founder of Toronto-based Fairfax Financial Holdings Ltd. BlackBerry founder Mike Lazaridis recruited Watsa to join the company’s board when Lazaridis and Jim Balsillie stepped aside as co-CEOs in January 2012.
Because Watsa was on the board, he likely has the best information on the value of its patents and other assets, said Mike Walkley, an analyst with Canaccord Genuity.
Watsa is likely to keep CEO Thorsten Heins in the job should the deal happen. He said in April that he’s a big supporter of Heins and has called his promotion the right decision.
BlackBerry said the general terms of the deal have been approved by its board and a special committee set up to look at options. The company said it will negotiate and execute a definitive transaction agreement with Fairfax by Nov. 4.
During that time, BlackBerry is entitled to continue to find other buyers, but if BlackBerry backs out of the deal, it would owe Fairfax about $157 million.
Fairfax said it is seeking financing from Bank of America Merrill Lynch and BMO Capital Markets. The release didn’t identify what other investors are involved.
Walkley believes the preliminary nature of the deal suggests his partners likely want to do due diligence with an option to back out. The announcement made no mention of any penalty should Fairfax back out.
Watsa is likely to keep current CEO Thorsten Heins in the job should the deal happen. He said in April that he’s a big supporter of Heins and has called his promotion the right decision. He also said he’s excited about the company’s new BlackBerry 10 operating system.
This year’s launch of BlackBerry 10 and fancier devices that use it was supposed to rejuvenate the brand and lure customers. But the much-delayed phones have failed to turn the company around. At their peak in the fall of 2009, BlackBerry’s smartphones enjoyed global market share of more than 20 percent, Walkley said. That is now just 1.5 percent.
The decline of BlackBerry, formerly known as Research In Motion Ltd., is evoking memories of Nortel, another Canadian tech giant, which ended up declaring bankruptcy in 2009.
But BGC analyst Colin Gillis said taking BlackBerry private is the right move and said it’s possible that BlackBerry could survive in a much smaller form. He noted that the $9-per-share offer is lower than the $12.32 average price that the stock traded over the past six months.
Anthony Michael Sabino, a professor at St. John’s University’s business school, said going private removes the burden of pleasing shareholders with short-term results, just as Michael Dell hopes to do with Dell Inc. after winning a bid to take the troubled computer maker private. He said Fairfax is known for patience in its investments, which would give BlackBerry time to regroup.
“In all honesty, its fate is still uncertain, but at least now it has a fighting chance,” Sabino said.