BlackBerry Reaches Preliminary Sale Agreement With Fairfax

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Fairfax Financial Holdings, headed by star investor Prem Watsa, has signed a letter of intent to acquire the smartphone maker

BlackBerry, which in August announced it was open to being purchased, said on Monday it has agreed to a $4.7 billion (£3bn) offer from a consortium led by Canadian private equity firm Fairfax Financial Holdings.

The smartphone maker said it has signed a letter of intent (LOI) with the consortium, which would purchase BlackBerry subject to due diligence. The due diligence period is six weeks (the deadline is 4 November), during which time BlackBerry is allowed to explore other offers.

Lazaridis in the running

z30BlackBerry founder and chief executive Mike Lazaridis has also reportedly been speaking with equity firms Blackstone Group and the Carlyle Group about mounting a joint bid to buy BlackBerry, the Wall Street Journal reported on 20 September.

Fairfax is led by Prem Watsa, a businessman often referred to as the “Canadian Warren Buffet”, and Fairfax is BlackBerry’s largest shareholder, with 10 percent of the company. When BlackBerry announced on 16 August that it was opening itself to strategic alternatives, Watsa resigned from his position on the BlackBerry board, calling it the “appropriate” thing to do in light of potential conflicts that might arise.

The LOI states that BlackBerry shareholders would receive US $9 cash for each BlackBerry share they hold. The consortium would acquire for cash all of the outstanding shares of BlackBerry not held by Fairfax, which intends to contribute all of its BlackBerry shares into the transaction.

At 1:25 p.m. ET, BlackBerry trading was halted, at $8.23, pending news. By 2:06 p.m., with trading resumed, Seeking Alpha reported that shares were up to $8.92.

“The price seems to be covering assets only, so there’s not really much value being given to the devices,” Carolina Milanesi, research vice president at Gartner, told eWEEK. “I very much doubt Lazaridis will get into a bidding war – it is not like there have been people lining up to buy the company.”

She added that the most likely scenario is that BlackBerry will be taken apart and sold in pieces – a scenario that Jack Gold, principal analyst at J. Gold Associates, thinks isn’t the best option for the company.

Long-term value

“I believe there is more value in keeping the three parts of the company (devices, services and collaboration) intact, which works better for the longer term value,” Gold said in a 23 September research note.

Gold still called the Fairfax deal “probably the best possible outcome of several unattractive options for BlackBerry”.

He added: “Mike Lazaridis, as has been rumoured, could buy them some time to put the house in order. They would be a much smaller player, but being private would mean that Wall Street is not continuously breathing down their neck. It would provide them with financial stability so its enterprise customers would not feel compelled to replace them for fear of going out of business… and it could provide them with cover to re-architect the company even more than they are now.”

Analyst Ken Hyers, with Strategy Analytics, has also told eWEEK that he believes the best thing for BlackBerry is to sell to a private equity firm “so it can delist from Wall Street and refocus away from the spotlight on fixing its internal problems”.

Analysts have estimated that BlackBerry, which has a considerable patent portfolio, could be worth up to $10 billion – still a far cry from the approximately $68 billion it was worth in 2007, as Apple introduced the first iPhone.

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Originally published on eWeek.