BlackBerry to be privatised by Canadian insurance firm, won’t stop it from crashing says analyst
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According to the Wall Street Journal, Fairfax Financial Holdings signed a letter of intent with the BlackBerry board under which it could pay $9 a share in cash for the 90% of BlackBerry shares it doesn’t already own. The deal came over the weekend after BlackBerry announced on Friday it had nearly $1 billion in unsold phones and would slash 40% of its workforce (around 4,500 jobs). The stock plunged 17% that day to below $9, reports the Wall Street Journal.
The deal is subject to six weeks of due diligence, and BlackBerry can shop the company during that period. Fairfax would still have to arrange financing. The agreement also doesn’t compel Fairfax to ultimately come forward with a firm offer, underscoring the weak negotiating position BlackBerry finds itself in. BlackBerry, on the other hand, would have to pay a breakup fee of more than $150 million if it turns to another buyer by Nov. 4.
"Taking BlackBerry private doesn’t solve the fundamental problems at the company. First, the company’s device sales are cratering, and its announcement last week that it no longer intends to pursue the consumer market is essentially the death knell for this business”, commented Jan Dawson, chief telecoms analyst at market research firm Ovum.
“BlackBerry’s supply chain relies on scale for profitability, and it will never again be able to achieve the scale necessary to make money on devices. It’s likely that BlackBerry will be out of the device business entirely by the middle of next year”, Dawson added.
“The next challenge is that BlackBerry’s other businesses are all to a greater or lesser extent dependent on its devices business. BlackBerry Messenger’s installed base is entirely on BlackBerry devices, and its launch on iOS and Android was aborted over the weekend. It’s mobile device management business is entirely based on its ability to manage BlackBerry devices, and its cross-platform management is much less well established than those of major competitors like MobileIron and Airwatch. If you strip out BlackBerry’s use of its QNX operating system for BlackBerry devices, you’re left with a business that’s worth less than $100 million. About the only part of BlackBerry that looks to be worth a significant amount at this point is its patent portfolio, and that certainly wouldn’t justify the purchase price on its own”, explains the analyst.
"Normally, companies are taken private in order to give a long-term strategy time to pay-off without the hassles of short-term investor scrutiny. But BlackBerry’s key problem for the last couple of years has been the lack of such a long-term strategy. It simply hasn’t articulated a way to rebuild its business as its device sales drop precipitously. Unless Fairfax plans to radically change or accelerate BlackBerry’s strategy, it’s unlikely to be able to turn the company around. And that means we’re likely seeing the beginning of the end for one of the most iconic brands in mobile technology" concludes Dawson.
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