BlackBerry (NASDAQ:BBRY) announced it halted its plans to go private in a $4.7 billion deal led by Fairfax Financial Holdings, its largest shareholder, and will instead receive a $1 billion capital injection from Fairfax and other institutional investors. BlackBerry also effectively ousted CEO Thorsten Heins.
Today was the deadline for BlackBerry and Fairfax to conduct due diligence on their proposed deal and also the deadline for BlackBerry to search for alternative buyers. It appears that the deal with Fairfax, which valued BlackBerry at $9 per share, proved unworkable. Additionally, it appears BlackBerry was unable to find another potential buyer, despite a flurry of reports in recent weeks pegging interested parties ranging from BlackBerry co-founders Mike Lazaridis and Doug Fregin to former Apple (NASDAQ:AAPL) CEO John Sculley to Chinese PC and smartphone maker Lenovo.
BlackBerry's $1 billion injection is expected to be completed within the next two weeks, at which point Heins will step down. Former Sybase CEO John Chen will be appointed executive chair of BlackBerry's board and will be responsible for the strategic direction, strategic relationships and organizational goals of BlackBerry. Chen will also serve as interim CEO pending the completion of a search for a permanent replacement for Heins.
Prem Watsa, the CEO of Fairfax, which holds a roughly 10 percent stake in BlackBerry, will be appointed lead director and chair of the compensation, nomination and governance committee of BlackBerry's board. Watsa had resigned from the board in mid-August, when BlackBerry announced its review of strategic alternatives, to avoid any conflicts of interest. Heins and David Kerr intend to resign from the board.
Fairfax and an unnamed group of institutional investors will invest $1 billion through debentures that can be converted into common shares at a price of $10 a share. However, the news that BlackBerry's plans to go private or find another buyer had collapsed sent the company's shares plunging; BlackBerry's stock was down nearly 12 percent at $6.86 in mid-morning trading.
It's unclear exactly what BlackBerry will do with its $1 billion cash infusion, but Chen told Reuters that one thing the company's won't do is shut down its handset business. "I know we have enough ingredients to build a long-term sustainable business," Chen told Reuters. "I have done this before and seen the same movie before."
"Today's announcement represents a significant vote of confidence in BlackBerry and its future by this group of preeminent, long-term investors," BlackBerry Chairwoman Barbara Stymiest said in a statement. "The BlackBerry Board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders."
Stymiest said that the deal "provides an immediate cash injection on terms favorable to BlackBerry."
"Some of the most important customers in the world rely on BlackBerry and we are implementing the changes necessary to strengthen the company and ensure we remain a strong and innovative partner for their needs," she said.
Even if the Fairfax deal had gone through and BlackBerry had been taken private, or if another buyer had emerged, BlackBerry would still be in dire straits. The company recently posted a $965 million quarterly loss, which was primarily due to a $934 million charge it took related to unsold inventory of its Z10 smartphone. BlackBerry also said it will cut 4,500 jobs, around 40 percent of its workforce.
Most importantly, the company has also signaled it will move away from the consumer smartphone market to focus more on the enterprise segment. Thus far, despite still having an entrenched position in many corporations and governments, BlackBerry's BlackBerry 10 platform has not caught on with users worldwide. According to the latest third quarter statistics from research firm Strategy Analytics, BlackBerry's global smartphone market share has declined from 4.3 percent in the third quarter of last year to just 1 percent in the third quarter of this year.
BlackBerry, could still pursue other scenarios, such as selling off its patents, said Jack Ablin, chief investment officer at BMO Private Bank. "Looks like doors are closing on BlackBerry and they are going to be looking at fewer options," he told Bloomberg.
Heins had been a BlackBerry executive since 2007 and was elevated in January 2012 to the CEO spot to take over for co-CEOs Lazaridis and Jim Balsillie, who had angered investors with sluggish upgrades to the company's products and dwindling market share.
Chen led Sybase from 1998 until SAP bought the company in 2010 and is widely credited with saving Sybase from bankruptcy. As the New York Times notes, Sybase had lost much of its corporate database business to Oracle, IBM and Microsoft (NASDAQ:MSFT). Chen helped turn around Sybase's core business, and then moved it into producing software for creating applications, mainly for the enterprise market, for use on mobile devices and to manage wireless networks.
"I see this as a very positive step. The new management brought in to right the ship will have both a mandate to do so (with a proven track record) as well as more breathing room (with the increased cash reserve)," said industry analyst Jack Gold. "I'd expect to see some significant redirections at BlackBerry over the next 6-12 months as the new management takes hold and new business priorities and directions emerge. John Chen is a non-nonsense CEO who will hold people accountable, and will bring either new growth to the company or position the company to be acquired at a higher premium than it can currently demand. I see this situation as a long-term positive for BlackBerry."
- see this release
- see this AllThingsD article
- see this Bloomberg article
- see this Reuters article
- see this WSJ article (sub. req.)
- see this NYT article
- see this CNET article
- see this separate AllThingsD article
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