In a surprise twist this morning, BlackBerry is going to stay public. What I’ll do in this quick editorial is explain what’s happening in plain language, along with my thoughts.
The financing: Fairfax wasn’t able to raise the entire $4.7 billion required to go firm on its original $9/share take-private bid. That much had been anticipated, and was heavily reported in the media this weekend. So instead of taking BlackBerry private, Prem Watsa shifted direction towards a convertible debt deal.
If it sounds funny to you, have no fear. Convertible debt deals are very normal. The buyers are actually buying debt instead of shares, and the debt seller (BlackBerry) pays an interest rate (in this case 6%) to the debt holder. The debt is convertible into stock at a price of $10 per share. So the buyer of these units is hoping a turnaround happens, sending the shares above $10, triggering a profitable conversion of the debt into shares (equity). Even if this doesn’t happen, someone else could still swoop in and buy BlackBerry, which would allow the debt holders to be repaid. The worst case scenario is still bad - the company could go bankrupt and depending on the value of assets at the time, debt holders could get much less than a full repayment.
Prem Watsa and his team are still bullish, obviously. But not enough other investors felt the same way. So this convertible deal pretty much puts him in control of the company for much less money. For Watsa, this is a great alternative. It has almost as much upside potential, with less risk.
Thorsten Heins is out: As much as I liked him early on, Heins was not effective strategically. He was effective in cost cutting, which comes from his operations background. But this was not the skill set BlackBerry needed for its CEO. Taking over as interim CEO is John S. Chen, whose background I won’t cover in this post. The board will be conducting a search for a new CEO.
My overall thoughts: This is probably the best outcome we could have hoped for considering that BlackBerry is in a very tough competitive position, not enough dollars were put forward to do a privatization, and no other buyers have yet thrown in a bid. Had nothing happened today, it would paint a weak picture for investor interest in the company. And it was pretty clear Fairfax couldn’t get $4.7 billion together. So a convertible deal gives BlackBerry a significantly stronger balance sheet, while the executive changes just might push the company in the right direction (only time will tell). That all said, shares of BBRY are now down over 16% since the news broke.
I’m not sugar coating anything here. This isn’t some shining good news story. Not by a long shot. But it’s better than having absolutely nothing happen. It’s much better than nothing. But we still need a strategic plan that makes sense.