For obvious reasons we’ve been covering the story of BlackBerry and Fairfax quite hard this week. When the news broke on Monday I wrote up my initial thoughts in this editorial and I thought it would be worth coming back today with some additional thoughts and details. There are a lot of questions from all of you, and there is a lot of misunderstanding about how the markets work, which I’ll also touch on.
First a quick recap: Fairfax Financial filed a letter of intent to take BlackBerry private at $9 US per share. As many of you noticed, this is not the same as a firm offer since it’s conditional on the insurance giant arranging financing and six weeks of due diligence. During this time BlackBerry is free to shop themselves to others and find a better offer for shareholders. If that happens, Prem Watsa and his group of investors can match the bid or walk away.
If you want to understand more about this from a professional investment banker, I can’t give enough recommendations for Mark McQueen’s awesome blog post. Go read it. Mark is an incredibly smart Bay Street professional, and a guy I’ve had the pleasure of working with for several years at Yorkton Securities, where he lead the tech investment banking team. You won’t find too many guys with his level of expertise and familiarity with BlackBerry willing to write publicly about this proposed deal.
Make no mistake, this bid is NOT going higher by Fairfax unless someone else steps in to force it up
I made my opinion pretty clear on Monday. $9 is a crap bid for all of BlackBerry’s assets. Make no mistake, this bid is NOT going higher by Fairfax unless someone else steps in to force it up. But if that happens, which I doubt, I think Fairfax would happily take their break fee and walk away. As McQueen posted in the above blog, the BlackBerry board has already signaled that it’s willing to sell for about $9.
No business person offers any more than they need to offer to get a deal accepted, and if BlackBerry is willing to settle at $9 it speaks volumes as to the situation they feel they’re stuck in.
Many of you have suggested there is a conspiracy, and that the timing of Friday’s layoffs + earnings warning + inventory write down is just too suspicious. Yeah, it is suspicious and I’m sure class action lawyers will be all over it. I’m sure it is possible that the BlackBerry team came to a recent decision that going private was its best option, and decided to air all of its bad news to accelerate a possible offer. It’s impossible to crucify a company for publicly announcing bad news. If there was another buyer ready to make an offer they’d have done so. Or another buyer will surface before November 4th. If nobody comes forward and this is the only offer, then we can’t blame the board for accepting a crap offer.
For those thinking I’m sugar coating the situation, sorry folks ... it’s just the way things are. Whether or not you believe the board did a good job running the company is a totally different discussion, and unrelated to the current M&A scenario we’re facing.
Another popular questions was, “Can shareholders reject this offer?” Yes, of course they can. Shareholder approval is required for a go private transaction. Just hit up Google for news about Dell’s privatization and you’ll see nearly 70% of shareholders voted to accept the deal. That’s what happens when the deal is viewed as fair.
Another popular questions was, “Can shareholders reject this offer?” Yes, of course they can
If a firm deal ends up being tabled at $9 I suspect there is no way it can fail. If shareholders think it’s a low bid, they should ask themselves why nobody else is willing to pay more. Look at BlackBerry’s stock today. It’s trading at $8.18 as I type, and that’s a very clear indication that shareholders don’t believe a better offer is coming, and they furthermore believe Fairfax may lower it’s offer.
Many of you are also curious what Fairfax will do with the company should they become the new owners. In truth, they could do anything they want. They could chop it up and sell of pieces. They could cut R&D and SG&A to the bone and milk the cash flow out of the service business over the next few years and then sell off the patents. They could raise new capital and make a big gun attempt at resurrecting market share. Anything is possible, and I’m not claiming I can read Prem Watsa’s mind. But it does seem clear from his public comments that he believes they can survive as a niche player in the enterprise market. I’d like to see them take the written-off Z10 inventory and seed those devices into the enterprise to grow the BlackBerry 10 and BES 10 base.
Friday morning the company will announced its quarterly results. We’ll find out a bit more about the good, the bad, and the ugly. We’ll hear from Thorsten Heins, and we’ll keep following the story for all of you. Stay tuned. Post any additional questions in the comments. I’m reading them and I’ll use them in followups.