BlackBerry Ltd. (BB) reached a tentative agreement for a $4.7 billion buyout by a group led by its biggest shareholder, forging a path to go private after years of losing ground to Apple (AAPL) Inc.’s iPhone and Google Inc.’s Android.
The group led by Fairfax Financial Holdings Ltd. (FFH) would offer $9 a share in cash, according to a statement today -- a 3.1 percent premium over BlackBerry’s closing price last week. The consortium is still seeking financing for the offer, which will be subject to due diligence and further negotiation.
BlackBerry, the one-time smartphone leader, was forced to seek buyout offers this year after a new operating system failed to fuel a comeback. For the next six weeks, a Fairfax-led group will scrutinize the device maker’s books while BlackBerry Chief Executive Officer Thorsten Heins and a special board committee see if there are any alternative proposals.
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“This transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees,” Fairfax CEO Prem Watsa said in the statement. “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.”
The Waterloo, Ontario-based company said last week that it’s cutting 4,500 jobs and taking a writedown of as much as $960 million for unsold inventory of its Z10 phone -- a touch-screen device unveiled in January as its answer to the iPhone. BlackBerry said it expects to report its weakest quarterly sales in six years.
The Fairfax coalition, which hasn’t been identified, is in flux and new investors could join while financing is lined up, said a person familiar with the matter.
“Our offer provides an extremely compelling combination of attractive and certain value for shareholders,” Fairfax said in a filing. “We are highly confident that the consortium can fund the full amount of the consideration and all related transaction fees and expenses.”
Watsa has held talks with BlackBerry co-founder Mike Lazaridis on working together on a deal, according to people with knowledge of the matter, who asked not to be identified because the discussions are private. In an interview today, Watsa said Lazaridis isn’t yet involved in the transaction. Lazaridis didn’t immediately return an e-mail message seeking comment.
Fairfax doesn’t plan to invest more cash as part of the takeover bid, relying on others for the remaining financing. The investor will roll over its 9.9 percent stake in BlackBerry, worth $457 million as of today’s close, Watsa said. Other investors will be able to finance the rest of the purchase through equity and debt, he said.
“We wouldn’t put our name on the line and we wouldn’t do this unless we were very confident,” Watsa said from Toronto.
Watsa resigned from BlackBerry’s board last month to avoid a conflict of interest as the company sought a buyer. Lazaridis, who stepped down as co-CEO last year, still holds about 5.7 percent of the company.
In the search for buyers, BlackBerry was shopped to Blackstone Group LP (BX) and KKR & Co., and both private equity firms passed, according to people with knowledge of the matter.
BlackBerry rose 1.1 percent to $8.82 at the close in New York. The shares climbed as high as $9.20 before sinking back below the offer price.
“The uncertainty around the subject of financing means it won’t lift the stock above $9 for any length of time,” said Matt Skipp, chief investment officer with Sw8 Asset Management Inc., a hedge fund based in Toronto. “The market always likes cash bids, but the market likes cash bids that aren’t subject to financing.” Skipp manages C$55 million ($54 million) and has shorted shares of BlackBerry in the past.
Fairfax climbed 1.1 percent to C$420.45 in Toronto.
BlackBerry, credited with inventing the first smartphones more than a decade ago, once sold products that were so popular and addictive they were known as CrackBerrys. In recent years, the company failed to keep pace with Apple and Samsung Electronics Co. (005930), which offered better Web browsing and a wider range of applications. BlackBerry’s share of the global smartphone market shrank to 2.9 percent in the second quarter from 4.9 percent a year earlier, according to IDC. It has fallen to fourth place behind Google’s Android, Apple’s iOS and Microsoft Corp.’s Windows Phone platform.
“Yesterday’s heroes are tomorrow’s losers,” said David Cockfield, fund manager with Northland Wealth Management in Toronto. His firm manages about C$225 million, including a small amount of BlackBerry shares. “I hope Prem Watsa knows what he’s doing.”
The group led by Toronto-based Fairfax is seeking financing from Bank of America Corp.’s Merrill Lynch unit and from BMO Capital Markets, according to the statement. BlackBerry didn’t name the other members of the takeover consortium.
BlackBerry will owe a breakup fee of 30 cents a share, or about $157 million, if it chooses an alternate transaction, the company said. If the smartphone maker and Fairfax sign a definitive agreement, the fee will rise to 50 cents a share.
JPMorgan Chase & Co. and Perella Weinberg are advising a special committee of BlackBerry’s board on the transaction. Skadden Arps Slate Meagher & Flom LLP and Torys LLP are legal advisers to the committee.
BDT & Co., Merrill Lynch and BMO are Fairfax’s financial advisers, while Shearman & Sterling LLP and McCarthy Tetrault LLP are its legal advisers.
The lead adviser on the deal for BDT is Don McLellan, a former senior vice president of strategy at Motorola Inc. who also oversaw the U.S. Treasury’s capital purchase program in 2008 before joining Byron Trott at his new firm in 2009. Another BDT adviser on the deal, besides Trott, is John Dills, a former executive at the private-equity firm GTCR LLC who also spent time at Goldman Sachs Group Inc.
The tentative bid is “the best the company can get to survive,” said Neeraj Monga, an analyst with Veritas Investment Research Corp. in Toronto. “At least under a private owner they can shrink to a size where they may become profitable and a sustainable business.”
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