BlackBerry has agreed to be taken over by a consortium led by Fairfax Financial Holdings for US$4.7bn.
Investors will receive US$9 in cash for each of their shares in the ailing Canadian smartphone maker, a small premium on its closing price yesterday…
BlackBerry has agreed to be taken over by a consortium led by Fairfax Financial Holdings for US$4.7bn.
Investors will receive US$9 in cash for each of their shares in the ailing Canadian smartphone maker, a small premium on its closing price yesterday of US$8.82.
Fairfax is seeking financing from BofA Merrill Lynch and BMO Capital Markets and plans to take BlackBerry private.
A letter of intent has been signed and the consortium has six weeks to conduct due diligence. The parties plan to formally enter into a transaction by 4 November.
Until a definitive agreement is signed, BlackBerry can still court other bids although it would have to pay Fairfax a termination fee of between US$0.30 and US$0.50 per share.
Commenting on that aspect of the agreement, Barbara Stymiest, chair of BlackBerry’s board of directors, said: “The special committee is seeking the best available outcome for the company’s constituents, including for shareholders. Importantly, the go-shop process provides an opportunity to determine if there are alternatives superior to the present proposal from the Fairfax consortium.”
The deal follows BlackBerry’s decision in August to form a special committee to examine strategic options including a sale, mandating JP Morgan and Perella Weinberg for the process.
When this announcement was made, Fairfax CEO Prem Watsa – BlackBerry’s largest investor with 10% of the company – stepped down from BlackBerry’s board due to potential conflicts of interest that could arise. At the time he added that he planned to keep his shares.
Watsa, dubbed the Canadian Warren Buffett, has been building his stake in BlackBerry for the last few years and is reported to have lost US$400m in the process.
In a statement Watsa said: “We can deliver immediate value to shareholders, while we 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.”
His comments echo the company’s decision last week to turn its back on the consumer market and re-focus on enterprise and professional clients. In its preliminary Q2 results, it said it expected to record operating losses of close to US$1bn and promptly cut 4,500 jobs, 40% of its global workforce.
Good move?
Jan Dawson, chief telecoms analyst at Ovum, was sceptical about the deal: “Normally, companies are taken private in order to give a long-term strategy time to payoff without the hassles of short-term investor scrutiny.
“But BlackBerry’s key problem for the last couple of years has been the lack of such a long-term strategy … Unless Fairfax plans to radically change or accelerate BlackBerry’s strategy, it’s unlikely to be able to turn the company around.”
Frost & Sullivan consultant Lawrence Lundy said that after it disclosed its recent losses, going private was BlackBerry’s only option. But he was more optimistic on the company’s future.
“In order to survive Blackberry will need to pull out of the handset and mobile OS markets. Blackberry will no longer be a consumer company; it will be an enterprise security company,” Lundy said.
“Blackberry still has a strong brand around the world, an industry-leading security system, and relationships with many of the world’s largest companies.
“By focusing on Blackberry Enterprise Services and extending Blackberry Messenger (BBM), and making these services available across all platforms and devices, the company can continue to exist albeit in a much smaller form.”
BDT & Company, BofA Merrill Lynch and BMO Capital Markets are acting as financial advisers to Fairfax. Shearman & Sterling and McCarthy Tetrault are the acquirer’s legal advisers.
