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| Worth a $4 billion gamble? |
Among other deal announcements in Sept., 2013, an investing group from Canada has decided to bet on Blackberry, the tech company that was all the rage from the late 1990's until the iPhone shoved it off the scene in the mid-2000's.
People still use Blackberry (yep, some still do!), and many companies support employee usage, partly because of an efficient messaging system. Yet with rapidly deteriorating market share and with its feeble efforts to catch up with what other smartphones offer (and with mounting losses), who would want to buy the company?
A Canadian private-equity company has jumped in to take the gamble and assume the risk. It sees some value other market investors and the consuming public at large don't--up to about $4.7 billion worth. It has agreed to a buy-out to purchase shares it doesn't already own.
People still use Blackberry (yep, some still do!), and many companies support employee usage, partly because of an efficient messaging system. Yet with rapidly deteriorating market share and with its feeble efforts to catch up with what other smartphones offer (and with mounting losses), who would want to buy the company?
A Canadian private-equity company has jumped in to take the gamble and assume the risk. It sees some value other market investors and the consuming public at large don't--up to about $4.7 billion worth. It has agreed to a buy-out to purchase shares it doesn't already own.
In recent weeks, Blackberry's CEO has announced large losses, lay-offs and a new strategy focusing primarily on institutional relationships (selling the product and service to companies, not individuals).
Blackberry's prospective owners, Fairfax Financial, must see some virtue in this strategy. And they get to observe the strategy in execution out of the public's eye (as a private company). No more need to earnings conference calls to disappointed investors to explain why market share dipped a few more percentage points.
For now, Blackberry and its new owners must digest some big losses. The company just announced a quarterly loss of nearly $1 billion--mostly write-offs of Blackberry product that never could sell and never will in an environment when other companies take bigger leads in the smartphone race.
But the new owners also see billions in cash that still reside on Blackberry's balance sheet and tens of billions in value from patents and other intangibles. For all its troubles, the company has a balance sheet that's surprisingly sturdy--over $2 billion in cash and negligible amounts of debt. (Somebody in its finance office deserves a pat on the back for that.)
The new owners haven't articulated publicly an acquisition strategy (what they plan to do when they control the company). They may think that Blackberry's prospects deserve one more desperate effort. And the deal was struck such that they could change their minds without much penalty.
Over time, if all doesn't go well, they can always sell off valuable parts of the balance sheet, seize whatever cash that remains, and sell what was once a top-of-the-heap brand name.
Time will tell, and the new owners will probably give a go for the next year and a half. The clock starts now.
Over time, if all doesn't go well, they can always sell off valuable parts of the balance sheet, seize whatever cash that remains, and sell what was once a top-of-the-heap brand name.
Time will tell, and the new owners will probably give a go for the next year and a half. The clock starts now.
Tracy Williams
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