Prem Watsa couldn't buy BlackBerry for $4.7 billion, so he bought it for $1 billion instead

By Chris Umiastowski on 4 Nov 2013 09:46 am EST

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.

Topics: BBRY Editorial

Reader comments

Prem Watsa couldn't buy BlackBerry for $4.7 billion, so he bought it for $1 billion instead


Ya I was like wow when this news broke on the Business News Network this morning.

So far I don't know who John Chen is but so far he looks good from his experience as CEO of Sybase which got acquired by SAP.

As Chris pointed out Mr Heins did a good job in his cost cutting in operations to save money as well as getting BB 10 finally out. But he still messed up in other areas.

Are we sure Fairfax couldn't get the $4.7 billion together?

BlackBerry has to be worth at least half that and he's somehow found the cash to loan $1 billion.

Looks rather more complicated than a simplistic view that Fairfax couldn't raise the debt. I'm sure he could have raised the debt - but perhaps he was having problems finding investors.

This way he provides more cash to keep the company running while having the option of converting the investment to de facto control.

The problem they have now is generating enough confidence in the company to persuade corporations to invest in BES10. Not an easy task by any means. And if they fail the prospect is of a break up of the corporation.

Still think they'd have been better off going private. And with the price at a more realistic $6 a share how difficult would that be?

Just to confirm the comments about debt versus investment...

"We did the due diligence ... and our conclusion was that a leveraged buyout with high-yield debt and at high interest rates was not appropriate for this company," Fairfax chief Prem Watsa said in the Reuters interview on Monday. "And so we came out with the convertible debenture deal that we saw as more appropriate."

So he could have bought the company, but would have needed to take on debt that prevented a long turnaround.

Q: Are we sure Fairfax couldn't get the $4.7 billion together?

Surely you didn't expect Fairfax to use their own money to float this? How do you think those guys make money? By using other people's money. I have a feeling the financial backers Prem went to weren't confidant enough to chip in much more than they have currently due to the uncertainty of BlackBerry's future, which is understandable. Risk aversion. Would have been nice to see some mega-billionaire angel investor come in and save BlackBerry because they love and believe in the product... oh well... dare to dream.

Hopefully things do turn around... only time will tell.

It's called real life. And life wouldn't be worth living if it was predictable so your 'wow' comment is misplaced.

via CB10 (BB Z10 : BLK : OS 10.1) [ Channel @ C0012477B for BB News, MMA & Tech Updates ]

First he was like "wow", and we were like "wow", and you were like "wow..."


Posted via CB10

This comment is a bit of a head-twister. The way it goes round and round on itself, it might be a good zen koan. I mean, you state that the world is unpredictable, then chide someone for posting a comment that, in one word, sums up that sense of unpredictability. It's kind of a Gilligan-and-the-professor moment, only with spite, presumption, and condescension instead of innocence, ignorance, and sincerity.

Prem is a man who obviously appreciates BlackBerry and what it stands for. He is willing to put money behinds his beliefs.

Posted via CB10 1.4.2 on Z10 on the Rogers Network

indeed. I don't get it though. Maybe becase I am on the outside looking in. They have solid produts and a great OS. Steal some Apple Marketing CEO's and crack the whip on BBRY product timelines and BOOM! its 2006 all over again :)

I really appreciate this by BlackBerry.. I mean, they could've thrown in the towel a long time ago, keep fighting BlackBerry, keep moving.

They Type... I Flick (get it).

That's actually false, FF wanted to buy them, they just couldn't put together the funds, it wasn't because they didn't want to, it was because the couldn't, there's a difference.

Posted via CB10

That's really not a whole lot better. Either they couldn't find the partners to join them, in which case saying "No one wants to buy them" is accurate since no one who can afford them wants to buy them. Or, they couldn't get the loans necessary to complete the purchase, which amounts to the same thing.
Chris has spun this as good news (somehow) but when nobody with the ability to buy your company has any interest in doing so, that's a problem.

I'm not going to say there are some reading comprehension issues here.  I would never say that at all.  But I will paste this portion of the ending of the article:

"This isn’t some shining good news story. Not by a long shot"

Saying something isn't good news isn't the same as saying it's bad news, which is what this turn of events is for BB.
As for it being better than nothing... I wouldn't bet on that either. BB seems to have made a habit of making bad decisions, Watsa has been involved with BB off and on for a while, including through large chunks of the decline. Should he have made a similar move for Palm 3+ years ago, I would not have been encouraged as a Palm enthusiast. I still expect to see BB sold off in chunks in the next two years. They're just facing too much competition in Google, Apple and Microsoft.

Bringing this back to the original point, which is a special talent of mine:  Saying something isn't good news is not saying that it's good news ... which is precisely what you accused me of doing. Is it not?

True. The overall tone of the article sounds optimistic to me, and I think you spin it as being better than it actually is for BB, but you did say it was not good news; poor incipient phrasing (and a dash of ensuing stubbornness) on my part.
To return to my own initial point, nobody wanting to buy your company when you put it up for sale is really, really bad news.

I still wouldn't say no one wanted to buy BlackBerry, lots of people showed interest hell i would buy BlackBerry if I could. This is a pretty massive purchase for anyone first, second everyone knows the Canadian government would block purchases from non Canadian companies. Kind of limits your options.

Posted via CB10

I would have loved to buy Palm, but you and I aren't viable buyers because we can't afford it. If you can't afford to buy something, then your interest doesn't really count. Nobody wants the company at its present valuation, and its value can't really sink much lower (stocks hit $6.50/share today).
This isn't surprising since BB is in a very crowded market, has lost almost all their market share and faces an image problem of not only being stodgy, old-fashioned and boring, but also a huge failure. Where do you even begin with a company like this? With that sort of mindshare, I wonder if the brand name HAS to go, though it may be one of their few remaining assets. The OS has no traction, but BB still makes great hardware and has great supply infrastructure set up. Personally, I'd dump the BB OS, go the Android route and develop a skin ala TouchWiz but geared towards security and enterprise. BB is too small to go it alone against Google, Apple and Microsoft.

So Prem gets to buy a billion dollars of BlackBerry shares at a bargain basement price and in the process gains a substantial percentage of overall shares meaning he gains control of BlackBerry. Shady.

Posted via CB10 from the BlackBerry Z10

No one wants to do the hard work with potential outcome. Even for Prem Watsa, it's not an everyday task to get round about 5 Billion cash. Blackberrys todays business model isn't common and needs a special knowledge combination. In addition there were companies that did NOT get this model running (like HP with palmOS).
Seems like you can not get that much money under this special circumstances. As you may know, there are a lot of firms that want to buy only parts of BB which are already highly profitable or at least very likely to.
In easy words: no one wants to spend 5 Billion when there is a high risk to lose all. Not very surprising, is it?

Interesting, I see how this is bad from an investor standpoint but honestly I'm relieved, i was pretty horrified at the idea of BlackBerry getting taken over by Lenovo...

Posted via CB10

For Lenovo and Facebook shareholders, buying BlackBerry is pretty horrific indeed. Lenovo stock is up 448% since 2009 while BBRY shares are down 92%. BlackBerry handset business is a money pit and this is why there were no takers in this recent buyout bid, not even Canadian companies. Heck, Rogers doesn't even want to carry Z30 but was only forced to due to nationalistic pressures. Where is the nationalism now with BlackBerry about to go bust in 18 months if they don't turn it around.

With this out of the way now, I'm interested in seeing what the road map for the company is going to be like...
I really hope that they manage to turn this around as I love my BlackBerry devices....

Posted via CB10

He's been a multi-millionaire..

Get over his severance package. It's common practice

Posted with my Q10!

Yup, imagine if it wasn't normal, what big name person would want to step up to the plate to just take a chance on turning this beast around with a high probability that they will fail and just shit in their career. Severance packages are to motivate reputable people to try and take the chance.

- Developer of 'Web Design Cheat Sheet' for BB10 (Posted via CB10)

He's getting some money from his severance package... but not the 52 million as promised since the company wasnt sold to a new owner! I belive those were the terms for this multi million dollar severance package...

um he doesnt get the $50 mil now, the company wasnt sold it was invested in. big difference. he's out the door but not $50 million richer...

Hear hear! My first Blackberry phone is on order... Friday I'll have a shiny new Z30 in my hands... :-)

I actually despise that slogan, it gives the wrong message. Blackberry keep moving suggests to the lay person to keep moving to another platform. it should be Blackberry we put the smarts in smartphones. Or Blackberry: In Motion with You.

Chris, you are genuinely my favorite contributor to CB. Why doesn't BlackBerry just hire you, Kevin and Team Crackberry as the new management?

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Lmao. Certainly hoping that that's a joke. I'm sure that the people you just mentioned are capable of running a multi-billion company given their experience in running a fans website.

Get real.

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Don't sell your devices at high price, wake up!!!! We can't beat android and ios right noe. Make many people experience OS 10.

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I agree. For example my friend likes the bb10 OS after I let him use my z10 for a bit

He wants to buy a new phone off contract, wants a q5, but he could get a nexus 5 for basically the same price. Difficult to even argue that the q5 is as good, so it is not price competitive

Posted via CB10

More like:

Kevin: "Adam, your fired"
Adam: "You fired me last week"
Kevin: "Right, well make this post... I'll tell you when you can leave. And no slacking off"

I had hoped to be put out of my misery at $9 (down $11 total as I'm in at $20) but the beat goes on and now I'm down an additional 16% this morning. Oh BlackBerry, you have not only broken my heart but also my bank. I guess I'm in until $0. Yeehaw!

It's about time they got rid of Heins. Cutting costs is kid stuff, vision and leadership are the hard parts. He us Aug hung all the way to the bank. After all those layoffs!

Posted via CB10

He was responsible for Sybase’s turnaround, leading the company’s market cap from $362 million to $5.8 billion on 2010.

Why wasn't he brought in a year ago

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All I say: Marketing, marketing, marketing!!!
And focus where Blackberry came from and what BB-Fans have loved for a long time!!!
The new BB10 phone are good, but it's the REAL soul which BB users were used to!

Chris, I guess it depends on what you were looking for. I never wanted BlackBerry to go private/sold. Not as a share holder and not as a fan of BlackBerry. When I read the news, I couldn't be happier.
A billion will give BlackBerry more time, and more options. It will help them not feel limited when they do decide what their future plans/goals are. 6% is a reasonable interest rate and having a 10 converted price shows optimism on Watsa's side.
I was also a fan of T.Heins at the beginning, but it became obvious that he was not the man for the job. I am also glad that him leaving was not dragged out.
Don't know what will happen with BlackBerry but I feel more optimistic today than I did on friday. BUT it seems that the markets don't agree with my optimism...

I assume no one really wanted BlackBerry to be owned by fb, Fairfax or who ever.
Im happy t.h. Has to go cause in my eye he was never able to convince others, he just couldn't sell it! They needed someone cool to hold the bb10 presentation in January, and not this nerd. And this Alicia Keys crap, don't even get me started.
However, im also happy with todays decision, it's all gonna be fine.
Marketing is important too, but also very expensive. I'm not sure if they can afford it - well maybe now they can.

Posted via CB10

Who would they market to? What is their strategy? Are they still going to ignore the 'consumer'? What is their plan going foward? Will they spin off BBM? Will they still have a hardware presence? When is BBM Channels going to start? Will they have any carrier support going foward?etc...
So many questions and we still haven't heard anything from the new interim CEO.

Chen said he will drop everything at this moment to answer your questions because he like... has nothing better to do today.

Wow, your sarcastic wit is hillarious. No one was saying that Chen has to come out with a plan right away. I was just saying that there are so many questions surrounding BlackBerry right now that it is hard to know if what happened was good or bad. Difficult to say what the future holds.
And sarcastic wit is for the ones who are too stupid to just come up with something funny!!!

I saw nothing funny in your moronic post complaining about not hearing yet from Chen regarding your questions. I'm sure that today his first task is to get hands on with BBM channels.

It seems that you guys are thinking of people who would market BlackBerry. Let's face it... one person, no matter who, is not enough. They need a BlackBerry team. They already have Lewis Hamilton and Alicia Keys. Add a little Jay-Z and Drake. Move over to Leonardo DiCaprio and George Clooney. Shake and bake with a few more sports stars. Make it a team effort. Get Connected and stay connected.

I just pictured a commercial where these stars used BB/BBM to organize their arrivals to a red carpet event.

Jay-Z was/is a Samsung guy. And remember, the Clooney, DiCaprio, maybe even Drake level of endorsers don't come cheap.

All my sentiments exactly! Well said.

Swiped with one thumb from the virtual keyboard of my awesome Z10!

Yes, the best outcome given the reality of the Professional Money Men.

It means that PW still sees something that the others are missing. AND BlackBerry remains in play for the others: ML, DF, et al.

Posted via CB10

I think at this point BlackBerry need to reach out to the common people..with less expensive devices to fight android and iOS for at least for some time initially. The more it penetrate into the market, the more chances of its survival but it needs to come up with less expensive devices. Bb10 has strong chance of survival.... all the best!!!

Posted via CB10

They also need to bring all the Apps big players aboard to really compete withe others

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Definitely, I know so many people and companies who are leaving Blackberry to go to iPhone purely because of apps.

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True that! More great devices but lower prices. So that we can reach more ppl. Then we'll have the domino effect.

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Yep..thats why android is market leader...I know many people who hate iOS but looking for new and better OS which currently is windows OS because Nokia has low end mobiles with same OS...Go with my suggestion BlackBerry!!!

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So now i can enjoy my Z30 without the fear that this might be the last BB device

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Go buy whatsapp for 1 billion and build out BBM...lead in something for God's sake.

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Well, my thoughts are that
1. It's good that BlackBerry did not go private. You never know what private acquisition would have done to BlackBerry as a whole company. I would hate a situation BlackBerry stop making phones.
2. In 6yrs Mr. Thorstain was able to help the company cut down operational cost. Now someone else has the opportunity to get some other benefits done.
3. BlackBerry now has the opportunity to truly move forward by bringing in innovators engineers and produce devices that meets the hardware requirements of this tech crazy generation.

Posted via CB10

I totally agree with you Chris, this isn't the best of news, it sure as hell isn't the worst.

I'm curious as to why Mike L. And Mr Fregin wouldn't get involved with PW and company? That would make an interesting consortium.


The most important is:
- BlackBerry is not chopped in pieces
- Heins goes

Let's hope TH takes Boulben with him to plan the next worst product launch ever...!

Does someone know if RH is entitled to his platinum parachute? Think that he only gets it in case the company is sold... but as that's not the case...

Posted via CB10

Enjoy your multi-million dollar parachute Heins! You played your cards well. Too bad it was at our expense.

I wish I had a dollar for every time this ignorant comment has been posted today . . He only gets that money if the company was sold while he was ceo . . I'm sute he'll get a healthy severance but it won't be the 55 mil you're referring to.

Where do you see me refer to 55 mil in my comment? He *will* get a healthy multi-million dollar package (current estimates are in the 30s), at least you aren't arguing with that. Perhaps you want to argue that we are still in phase one or two of his multi-stage turn-around plan? Or that he was useless in turning the company around? Or that the team he brought on was similarly ineffective? How rosy are your sunglasses?

Umm . . Sorry . . There have been a bajillion people complaining about Heins getting that 55 mill package, appatently you aren't one of them, I guess yours was just the straw that broke the camels back for me and I read too much into it.

I think this is excellent news. BlackBerry must man up and compete to stay in business. No white knight to save the ugly damsel in distress! Stop whimpering and compete! Good hardware good is, make it exceptional - that it can be done in waterloo not silicon valley.

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I didn't think this way until recently but it now seems time to shed the hardware (losing side) of the business. With BES10 and other software systems, BYOD is a reality so this is the direction to go. Stay the best in enterprise - and in the process, become profitable. I believe that Lenovo could make the BB phone and do a good job. Yes, Mr. Obama might not be able to use one anymore but so what? Just so you know, I own a Z10 and so does my son and we love the phone. Plus, I own a Playbook and like it.

Speaking as a purist I would like them to keep the hardware business. Yet it's hard to really argue this is currently beneficial to the company financially. Eventually if the company recovers they'd be happy to have the hardware business, down the line, like apple. But being in pretty dire straights maybe they need to get rid of it to survive

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I really don't get this byod thing, I've complained about it before but I just don't get if, if I need a phone to do my job you better supply it.

BlackBerry needs to make their own hardware if they want security

Posted via CB10

Is there a Blackberry App that allows you to buy stock?? I'd like to get in on this a bit while it's low but don't really know how...

Posted via CB10

Heins was a good cost cutter when asked to do so but a horrible marketer and spokesperson.

Posted via Harry

Waiting for some radical changes in how BlackBerry works... and guys who have been waiting to know about the future of BlackBerry.... it is here to stay for long... with a better Cash position of at least 3.5 billions... though some of it will be lost in the quarterly results.

I'm truly optimistic about it and holiday so more corporates will now come forward to adopt bb10 and BES :) Best of luck BlackBerry... Keep Moving

Posted via the awesome keyboard on Z10STL100-1/ using CB10 App

One of your best post Chris...And I do believe that this was probally a very good option when all thing are considered..TH had to go...i wish thier were more changes at marketing level as well...but those should not be far along

Posted via CB10

This is exactly what they needed. An Electrical Engineer, with no idea about UI or UE, that sat on the board during the collapse, to step up and "run" the company. 12 months max.

I think the question has to be asked why an influential person such as Mr. Prem Watsa couldn't secure the founds. While I agree the company should not go private or get chopped upped it clearly shows that financial institutions/investors don't have confidence in Blackberry.

In addition to this, it surprises me that non of the big boys made a move. Obviously they know something we don't know.

In that number of zeroes (at the left side of the dot), People are getting irrational when it comes to rumors. I'll make it short and give you the answer: People that say that BlackBerry is doomed are responsible for that. Unbiased naysayers too.
Let's say you can buy up to 50 Apples, but someone tells you that one of the 50 is poisoned. Even if you believe that he is lying, you will probably not buy and eat 50.... 40? 30? 1? Ask yourself!
The more money people risk, the less they look at the chances.

While I agree with your example I believe at this level financial institutions rely on facts and look into the financial statements instead basing their decisions purely on rumors. If there was something truly valuable such as the OS itself, patents, services and the list goes, I'm sure the leading mobile manufactures would have had a feast over this.

I think you brought an absolutely valid point. But the CEOs of potential bidders will not go "all in" on a business that is not similar to their own. They will look at what suits best, because they are paid and measured by what they control. If there is a different business to aquire, they will probably not act rational but simplifying. they can not analyze a different firm completely and unbiased. You need a kind of hope and why would a CEO of A risk anything if his business is going well?

Financial firms will in turn prefer looking at what can be the roi in short terms, which means that most of them will not risk a few quarters with no outcome or even loss.
Fairfax is already a shareholder and a partner for years. They know what they do and were not able to get that much money. I think that this is mostly influenced by rumors. Of course it is a high risk, trying to be competitive to Google and apple, but I frankly don't think that all players in this game are homo oeconomicus

Swiped with my awesome Z10 keyboard

They might know that the Government of Canada will block any foreign purchase, but this still gave them the chance to look at Blackberry's books.


Perhaps other investors offered to join in but they brought conditions that didn't mesh with Prem's ideas. It's not always a case of no money on the table but at what cost to bring it on board.

Whatever it's gonna take, cheaper phones or better marketing once people really use bb10 they'll love it as most of us should already know. My q5 is my first BlackBerry and look here I am. It's gonna be an uphill battle for sure but here's hoping it goes well. People using the phones will bring the developers, but as far as I can tell nobody even knows about new BlackBerrys or bb10 at all, plus the z10 is intimidating with no buttons it's a real mindjob I think that's what scares the un educated mass that is the general population.

Posted via CB10

I loved my Z10 from the start, but the evidence certainly suggests that many people find it tricky to use in store, so they reject it. However, the main issue for me is price. BlackBerry must recapture market share. With no new devices likely for a while and continuing uncertainty over the direction of the company, buying decisions can only be pulled in BB's favour if people feel that they're taking less of a risk.

Z10 STL100-1 /

Actually it appears he bought effective control for $250MM with others coming in with $750MM for the remianing convertible debentures. In effect, BlackBerry now has some debt on which they must pay above market interest.

Good post, Chris.

Basically anybody who wants to can buy Blackberry right now. They can just keep scooping up shares at discount prices.. I wish I had that kind of cash to risk..

Very happy that Blackberry was not broken up. With a downsizing that ensures that revenue will exceed costs, then Blackberry has a chance to survive, grow and eventually gain market share. Blackberry, the most secure phone in the world, with a great operating system, will eventually be a success. I will now be purchasing a Z30 as soon as possible to go with our Z10.

Prem Watsa is trying to save at least some of his investment. I have not seen exact numbers but if what I have read is correct that he is in BBRY at about $17 per share. His firm is really hurting so now he is in the drivers seat to get his money back. His firm just reported a loss, if memory serves.

I am not convinced that they can make it as just an enterprise solution. Unless there are patents protecting them, other companies already in the back office, CISCO, IBM, MS can put together a secure solution too. Any if the future is like the past, the others will do it a lot faster than Blackberry did and leap frog ahead.

Bloomberg reported that they will spin off the device business. Is that where Lenovo comes into the picture?

Oh man I was hoping BB would go private and out of sight from the hounds and evil doers negative press lol
For the short term I guess this is good for the balance sheet, we will see come December how bad the books and sales are.
What they need to do now is hire a genius simply brilliant marketing group that will make people pay attention to BB again in a good way. Create some in house funky apps that will draw attention to their phones/OS. Make a stylish Z10 for 2014 with top notch specs! Go hard for the enterprise business as their competition is salivating at the thought of stealing away more customers.

Stock down 13% oh that hurts my balance sheet :( lol

Can this kind of news shows how is BlackBerry going to be like in the future? For example more focus on enterprise rather the consumer market. Planning to get BB next year if BB plan to release another flagship phone. But now, I'm consider to buy Z30 instead.

This is probably the best outcome that we could hope for, all things considered.

Posted via CB10

At least the company did not get broken. Am happy for that. Still waiting for my Z30. BLACKBERRY keep moving.

This deal is for unsecured subordinated debt. Don't know how many parties stand ahead of this hybrid equity instrument, but my guess is that the lenders will get hosed if they have to rely on being repaid out of liquidation proceeds. Seems to indicate a fairly big bet that the company will eventually turnaround enough to (a) be sold for enough to repay the debt, (b) reach a share price on the public markets that justifies conversion, (c) become solid enough to repay the debt and justify a conversion.

Just depends on perception. This deal and new breath may twist the spiral-down of BBRY. Or may have nothing but just time-buying before going down. Nobody knows.

Updates screw up my text messages and email settings for accounts that do work, and still can't delete Gmail account which gives me daily error notifications. Can't believe I've stuck with this loser company for so long.

Posted via CB10

If you examine the terms of the second BlackBerry announcement – the convertible debt investment – you get an idea of the company’s path forward. It isn’t pretty.

One way to look at this investment is that it positions Fairfax and the other investors for a BlackBerry bankruptcy. BlackBerry has no long-term debt on its balance sheet, so this investment would now jump Fairfax ahead of the equity line for controlling BlackBerry in any bankruptcy proceeding. And remember that BlackBerry is a Canadian company, so the bankruptcy would be there. Canadian rules are different than those of the United States, but they do allow the creditors to have a substantial say in any restructuring plan, including approving it.

But by structuring the investment as a convertible debt interest, one that is convertible into shares, Fairfax has it both ways. It protects its downside in a bankruptcy, but it also has an upside.

- dealbook.nytimes

This is awesome news considering. I'm expecting to here a partnership deal here sometime soon after they pick a new CEO.

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I think this is a pretty bad deal for Blackberry and its investors. Think the hope of ever seeing that $9/share price may be done. All the groups rumored to be looking into buying the last few weeks, and this is the best deal they can do? Really bad sign. That being said it does buy some time and hope. Have to assume new management will come in and make major changes, so will be interested to see the direction they decide to go.

So the man who assured us, on his reputation that he had the money in the bag, didn't. He knew as Chris accurately says that to just let the deal drop with nothing else on the radar would have meant death to the company as anyone considering a move at the Corp level to BB10 would have abandoned it.

So the best and brightest in the Corp world investigated this company and unanimously came to the conclusion that the company wasn't even worth $9.00 a share as it stands.

I believe on the next ER it will become clear why PW had to pump another 1 billion into the company. The old phrase "throwing good money after bad" comes to mind immediately.

The company is not worth zero, at least as it stands now. What the real value of a company hemorrhaging cash and employees is anyone's guess at the moment, but what we now know for sure is $9 wasn't it.

i predict bankruptcy. they're going to blow up shareholders. Watsa has now positioned himself to be first in line for the scraps when this dying carcass goes to slaughter.

Chris does Prem have egg in his face? I remember him saying my reputation is in the line and I am confident in my ability to get financing. This whole deal seems amateur from the start in making an announcement about somebody who didn't have the money buying the company.

Great article...however this development today just adds more negative headlines which in turn adds to more people and companies not believing in the product. The Z and Q10's are great devices and I am not sure anything can be done to grow this business. The only people I know with BB's are corporate issued which is fewer and fewer and a few people like myself who are diehards. I believe the company will be split up and the hardware business closed once and for all.

Thorsten Heins is done? He'll never work again in the industry nor does he need to. He may consult if he gets bored and help companies with cutting costs/expenditures for some weekend fun money or to buy a private Jet or a house in the Cayman's. However, I don't think he'll get hired again full-time for company growth or as title CEO. Prem Watsa - I see this as something that MAY be positive but could still result in epic........FAIL. Only time will tell...............

You can only blame the CEO for failure to perform tasks he's responsible for. I think Heins did what he was pretty much forced into at every turn. What BB needs is someone who understands the technology from all business model sides. Comparing BB to Android, or to iPhone, is completely unfair. BB is trying to compete in a market place using a model that puts them at maximum disadvantage. Creating an OS against Android, who offers their OS for free, and has a limitless development team (anyone interested), is always going to be impossible. IPhone is still riding the wave of popularity, and resistance to change. Technology wise, Apple is way behind, and will never catch up either.
If I were running BB, I would adopt the full android OS, maybe allow a unique skin like Samsung and touchwiz, and just make good quality handsets. And become the best cross platform, secure app developers, concentrating on business minded apps. Those are BB strong suits, go with them. The Android OS is going to be what wins, they develop way to fast to compete against.


Why do you think BlackBerry wanted to take on debt? For years it seemed that cash and no debt were some of BlackBerry's strengths. It's good to see some financial backing from Fairfax (well w/ little risk as you mentioned) but what could you see this cash being used for?

I like that idea of the potential new slogan " Blackberry....moving with you".

Anyone think this sounds better?

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Better than doing nothing??? LOL how can you say that Chris? By doing something stock is now 6$. They lowball takeover at 9$ and now failed.

If they originally did nothing instead of accepting this cap in hand takeover the stock would still probably be around $9.

The only thing I don't like about this deal is the company is still public and will still take a DAILY beating on the stock markets until it turns around. I'm in it to the end!


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Does this mean that they can no longer claim "zero debt"?

That has always been a big piece of the "financially sound" argument.

No confidence vote by investors yet Watsa had to move forward to protect his position. I don't see any successful outcome without a buyer stepping forward; someone strong like Lenovo. At this juncture BlackBerry is not a viable co

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It's interesting to me that Heins came from an operations background. So does the present Apple CEO, and we are seeing this in new Apple products which are (a) cost reduced and (b) near unrepairable. This could bite Apple a couple of years down the road when the first customer complaints arrive of products which are scrap as soon as out of warranty.
Heins didn't make this mistake with BB10, which must be of some comfort to enterprises who have bought BB10 devices.

A few thoughts on Chris's observations:

"If it sounds funny to you, have no fear."
- Yep, this whole thing's hilarious.

"For Watsa, this is a great alternative."
- Sure is. Not so great for shareholders, but most of them aren't billionaires so who cares?

"This is probably the best outcome we could have hoped for..."
- Considering that BlackBerry management has now overseen the destruction of more than $75 billion of market capitalization since 2008... sure, this is just another brick in the wall. My guess is that most BlackBerry investors gave up on hope long ago.

"That all said, shares of BBRY are now down over 16% since the news broke."
- Down 17.25% as of 1:10 ET, and trending lower.

"It’s much better than nothing."
- Sort of like being decapitated after having been tortured for days is much better than continuing to be tortured.

As I continue to laugh, I think:

This is the person CrackBerry needs to hire to offer another perspective....

Mr. Murph, I see no other way to add to this post except to say +1.

and once again, shares where shorted by 30% before that crash. which is the 3rd time this year. someone somewhere is having fun.

This still better than BlackBerry was sold to a bidder who will sell it in parts. That will be the end of BlackBerry as a company. This is good news for the time being. Prem Watsa is a lead chairman. Next is a CEO and a strategy going forward.

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Well, if your not sugarcoating it then your comments border on wonderfully optimistic. The share price hit today gives Wall Street investors' view of these developments and it is decidedly negative to say the least. You may get a little temporary spin up off short covering but that's about it. Fairfax's bid was a spurious attempt to manipulate the pps to a 9.00 floor, a parachute if you will. It did not work. The market certainly saw through it albeit with some with highly curious pps spurts off nebulous suitor leaks but in the end no other fairytale suitor thought BB was worth buying, at least to date. Replacing the CEO is throwing a bone to the rabble in the hope it quiets the crowd down. The only upside is the lower it goes the better it is for a break up and parts sell off. Wake up and smell the roses.

So Fairfax had 9% and then added another $Billion. How does that make him have control. Fairfax is still a minority shareholder.

I'm curious why they need that billion more. They have money and real estate. They have a half billion tax refund.
And they should be dumping Z10s in the US and Canada.
Try to break even and give the penetration rate a boost.

I think it is great that Heins is gone. He was not respected by Wall St. and because of his misleading statements that may have been necessary for the survival of the company, was distrusted.
Now, someone with some street cred comes in and will be listened to a little more.
After things settle down, I think things will work out OK.
Just remember what Scully said.

Interesting news - thanks for the write up. I'm surprised BlackBerry couldn't find a buyer - and there is obviously some internal lack of confidence, in BlackBerry, over at fairfax - and they couldn't get anyone else to go along with them. Ouch.

TH going - well hopefully new blood will reinvigorate BlackBerry going forward.

Here's hoping!!!

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So really, what's changed?

My earlier comment was that this is the best that could be expected given the recent track record, which was all the hard-nosed analysts could reasonable judge. Today's announcement buys time for the turnaround.

Still, the problems remain exactly as they were last week. BlackBerry has a great product - the personal users that I know love the phones, the OS, and the BlackBerry experience. However, it is widely recognized that the marketing / BB10 launch was/is suboptimal, so other non-users are not even curious.

Having completed the work of the Special Committee, we now know that there is no external saviour for the company. The hard work of determining a successful strategy remains.

The most disappointing thing for me is that the public flogging of BlackBerry will continue. I really cannot see my morale improving...

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Chris,yes absolutely BlackBerry needs an effective and efficient strategic plan.

The Special Committee was necessary. However, the cost was the suspension of any strategic planning in the interim.

Tactically, the release of BBM and the Z30 moved things along. As wonderful as these are (and the xBBM program promises to be a real cash cow) they do not address the long-term (forward and back in time) issues with BlackBerry.

Strong leadership is needed.

I am not a basher of Thorsten Heins - his task was remarkably difficult and he did as well as could be expected. I think that the company is stronger for his tenure. But a different kind of leader is necessary now.

The main task is to determine the strategic direction for BlackBerry given the current reality. Decisions of consumer vs prosumer, data management vs hardware, security vs popularity - perhaps all of these are false dichotomies and there is a middle path.

Nevertheless, none of these were in the senior management sights while the Special Committee was active. Time has been lost when it (and the consequent cost) is in critically short supply.

The immediate cash infusion by Fairfax buys some time. Even so, decisions must be made quickly. The worse factor is there will not be much chance to recover from errors.

If people thought TH had a tough job, they ain't seen nothin' yet.

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Everything you just said I agree with. I see nothing else Heins could have done. He got BB10 out, the devices are excellent, he streamlined the buisness (hurts to think of the people who lost jobs, though) and he provided leadership. Problem is, nothing changes for all that has changed. How do you market a new OS? As a current WP user, I can say first hand how hard it is to get people just to give something new a chance. How do you get support? Do you fight tooth and nail for the consumer market? Do you fight tooth and nail for the enterprise market? Do you have the resources to do both?

I really, really love BB10. I respect the living crud out of the BB name. I hope they find the energy and the ability to turn this around. But a lack of vision at this point is killing them more then any bad PR is. Their products are amazing. Their ability to get their products out there.... not so much.

Exactly. No strategic plan, and if they can't figure out the HW situation, that will be it.

The Canadian gov't didn't allow Lenovo to buy BlackBerry as per the just out Globe and Mail article. At this point, I don't foresee good things on the horizon for BlackBerry.

the Debentures are accounted in US$, but they travel from a Canadian company to a Canadian company through a Canadian stock exchange (Toronto).

Everything stays in Canada. This is good.

I agree thor should be the CFO not the CEO. Blackberry needs to bring excitement back to the brand, and TH puts me to sleep.

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The real key to success will be the vision developed by Chen and the board. Most of us on this forum recognize the quality of BlackBerry and OS10. The product is not, has never been, the issue. identify the strategy, execute it on time and find a marketer to sell it. As a formula, it's not much more difficuot than baseball: you throw the ball, you hit the ball, you catch the ball. In practice, hitting throwing and catching are pretty darned difficult. So it is in running a business.
I'd think the first step is find a marketing VP and identify an ad agency or two. Sell enough Zs and the Qs and the rest will follow.

Good move. Invest 1 billion. The worst that could happen is lose 1 billion vice 4.7

If by chance BlackBerry gets back in the market share, the 1 billion investment makes money.

I like to see a recovery but after seeing what palm/hp did, I wouldn't be praising BlackBerry just because of the new interim ceo.

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...they could get Mr. Bean as a rep, and he could say more with less talk. He always wants to gain the upper hand, and with Blackberry he can beat people at communicating without saying a word.

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The fact that Pringle Watsahisname and Fairfuck Financial are still very much in the picture and that now Pringle has his bony fingers all around the throat of BlackBerry is not the best outcome...but it is what it is!

There is something off about this guy...he reminds me of a charlatan more than a businessman...I get the Bernie Madoff vibe from him.

So now we got rid of Heins Ketchup but are stuck with the Cryptkeeper as the Lead Director (what the hell is a Lead Director? What does he do?)...back on the BoD where he didn't accomplish much when he was there in the past...but it's his money soo...not much choice.

Hopefully Mr. Chen won't be a pushover or a string puppet interim CEO, doing only Pringle Watsahisname's bidding...and if they are actually looking for a new CEO, get some one that knows what the hell he is doing! This company is in bad need of good and competent leadership. It needs nothing less than an ace!

Of course that is all provided this is not another trick being played on consumers and shareholders by the Cryptkeeper! If he sticks his parasitical fingers in BlackBerry and starts treating it like his personal fiefdom, like ass clowns Lazaridis and Balsilille did, then this company is trully doomed, not only that, but it will have an ugly and protracted demise!

I really hope they are going back to the drawing board with this one...and that this isn't the Cryptkeeper blowing smoke up our collective asses...

Someone pointed out that Heins Ketchup will ONLY receive $33 million dollars in severance instead of the $55.4 million dollars he stood to if that makes any difference, that is still a LOT of money! And for what? Failure?

Meantime, former BlackBerry employees are facing the holidays without a paycheck or a job and dire prospects come next year...

Winter Is Coming

Does anyone think BlackBerry will be going on a spending spree with that $1 Billion?

I think we may see an acquisition or two..


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Well technically i believe TH does not get the$55 million since the company didn't sell.. Also since he stepped down (i.e. resigned) all he gets is what ever pay was owing to him, and maybe a little bonus just so there are no hard feelings. Which i believe is good enough since he didn't deliver. Also keep in mind TH doesn't escape punishment who is going to hire a CEO who presided over the demise of one of the greatest tech company's.

I have another take on this which is actually very bullish at least in my opinion. BlackBerry has come to the conclusion that with the successful launch of BBM a now very refined OS 10 in its latest version and a competitive phone in the Z30 staying public is in the best interest of the shareholders which stuck with the company until now. There is tons of value that can be unlocked with the right management and marketing. Yes marketing and execution, that is what the company has been missing! Do as you say on time and with fewer hickups and you will be back in the running as one of 3 key mobile platforms! I bought shares today and in an overvalued market where companies like Snapchat are thought to have a value in excess of $3 billion on a hope and a prayer, I think BlackBerry represents excellent value with the right management. (disclosure: I am long BlackBerry shares)

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I take this as a positive despite all the continued doom/gloom nonsense being spread around by news agencies.
I've been asking this same question over and over again, "How can a company that has no debt and is cash flow positive (Approx: $2.8B in Cash) be going out of business? With continued strength of over 25,000 BES10 installations and growing.

Two things that messed up BlackBerry hardware sales:
1) Timing of the News Release based on the Strategic Review, which left people wondering due to many missing answers to hard questions, ultimately killing BB10 sales. Not to mention fuelling the DOOM/GLOOM rumours and stories.
2) BlackBerry Entire Marketing Department completely dropped the ball and needs to get FIRED as soon as possible. Not denying the USA Carrier multi-year "Rip-Off" contracts they signed with Apple, where carriers get punished if they don't sell enough Apple hardware. So instead of carriers pushing BB10 devices, they were pushing iPhones to consumers and spreading (FACT) lies about BBRY going bankrupt. (I have family, friends and contacts in the USA, and they've seen this 1st hand, especially at SPRINT and Verizon.)

BlackBerry now needs to "REPAIR" its image, its marketing and strategically price its BB10 hardware to move inventory and get them into people's hands as FAST as possible.

Many companies were sitting on the side line, holding off on BES10 just to see what will happen to BBRY pending November 4, 2013. Well, now we know, they are doing business as usual, but with a strategic twist.
Now all the Bashers and Doomsters can quietly move along, BBRY is not bankrupt, not going bankrupt, and will continue to flourish under a suppose stronger board of directors lead by a new Leader, for now the intern CEO.

The only problem BlackBerry had was how long it took to get to 10.2..

Basically didn't have a product to sell until that point..

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Good post Chris. Always like reading your view and analysis. Really hope a strategic plan does come and save the company as I think they still have a good product.

I want to ask you what do you think of Kevin O'Leary's opinion (that I heard on CBC) that they couldn't find a buyer because of the Canadian government position against foreign ownership? He was adamant in blaming the government policy (or lack thereof) on this issue.

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I had a mixed and confused feeling when I was reading the breaking news this early morning. I am so happy to know that BlackBerry is not going private, but I am not that happy as I feel every related party had been playing a big show. If injecting money into the company is the best solution, it should have been proposed and considered at the very beginning. Politics at all!

Really I wanna say to mr.chen, can you please pull your ass back to China again? Please! We need blackberry alive in China. Loosing China means loosing everything. We Chinese market has a unprecedented market size before. So please.

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