Blackberry receives $4.7-bn buyout offer from Prem Watsa's Fairfax Financial
24 September 2013
Blackberry yesterday reached a preliminary deal to be acquired by a consortium led by its largest shareholder, Fairfax Financial, for $4.7 billion, which analysts opine would be in the best interest of shareholders since it is unlikely that the struggling Canadian smartphone maker will get a better offer.
The proposed buyout offer from Prem Watsa-run Canadian insurance group Fairfax comes just days after Blackberry announced that it is sacking 4,500 employees and expects to post a quarterly loss of nearly $1 billion. (See: BlackBerry to post nearly $1 bn Q2 loss, cut 4,500 jobs)
Blackberry said in a statement that Fairfax, its largest shareholder with about 10 per cent stake, had offered $9 a share in cash, a mere 3.2 per cent premium to BlackBerry closing price on 20 September, when the stock plunged 17 per cent after the company announced its restructuring.
The offer values Blackberry at about $1.9 billion excluding the $2.8 billion in cash reserves.
The offer is subject to receiving financing commitments from Bank of America Merrill Lynch and BMO Capital Markets, due diligence and further negotiations.
The Ontario-based company did not reveal the name the other members in the buyout consortium, but Watsa, a board member at Blackberry, said in an interview that Mike Lazaridis, co-founder and former co-CEO of BlackBerry, who holds a 5.7-per cent stake, is currently not a part of the consortium.
But several media reports speculated that the consortium members could be Canada Pension Plan Investment Board and Ontario Teachers' Pension Plan.
Although Blackberry has signed a letter of intent with Fairfax, it said that it would continue to "actively solicit, receive, evaluate and potentially enter into negotiations" with other potential buyers for about six weeks.
But the deal is far from over as analysts say that Fairfax may even lower its offer after conducting due diligence, and expects no competing bids since no buyer has shown any interest in the company since Blackberry put itself for sale in August.
With the company's bottom line in the red and subscribers deserting it, private equity firms and other buyers might not want to step in.
In fact, BlackBerry would have to pay more than $150 million as breakup fee if it agrees to be acquired by another buyer by 4 November.
Watsa, who stepped down from the Blackberry board last month to avoid conflicts of interest, said the consortium is yet to decide whether the company's current management team will continue or whether BlackBerry will continue to make smartphones.
Barbara Stymiest, chairman 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.''
''We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees. 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,'' said Watsa, chairman and CEO of Fairfax.
Blackberry, which recently changed its name from Research In Motion, has seen its shares plunge by around 90 per cent from over $80 per share in mid-2009 to around $8.82 per share, and its market value down to $4.7 billion, from its 2008 peak of a whopping $84 billion.
Till recently, BlackBerry, a pioneer in providing secured emails on handheld devices, had firmly pushed for staying independent, pinning its hopes on a turnaround from sales of its latest smart phones.
But its financial problems came to a head this year after disappointing sales of its new Z10 model smartphone that was released in January - after many delays.
Several analysts had years earlier predicted the downfall of Blackberry since it had only one model of the smartphone, no apps or ecosystem except for the email and a tablet that bombed in the market.
Analysts now say that if the company continues to be listed, it would go bankrupt in six months after burning its $2.8 billion cash reserves.
With 2012 revenues of $6.5 billion and market cap of $9 billion, Fairfax is a financial services holding company with interests in property and casualty insurance and investment management.
The Toronto-based company operates through 12 subsidiaries or joint ventures in Canada, the US, Singapore, Hong Kong and India.
Hyderabad-born Watsa, who earned a chemical engineering degree from the Indian Institute of Technology Madras in 1971-1972, later changed his field entirely after moving to Canada in late 1972 and got a masters degree in business administration from the University of Western Ontario.
Watsa, who controls nearly half of Fairfax, has often been called the Warren Buffet of Canada for his skill in value-oriented investing strategies.
He is director and member of risk committee at ICICI Bank ltd and ICICI Lombard - a 74 : 26 per cent joint venture between ICICI Bank Limited and Fairfax Financial.
Fairfax has recently been on an acquisition spree buying companies to expand its global business.
This year it agreed to buy Ohio-based pet insurer Hartville Group, Inc, while in 2012, Fairfax acquired London-based Brit Insurance Ltd for about $300 million and a 77-per cent stake in Thomas Cook Group Plc's Indian unit Thomas Cook India Ltd for approximately $150 million.
It also acquired a 25-per cent stake in Thailand's reinsurer Thai Reinsurance Public Co Ltd.