BlackBerry Seen Finally Opting to Go Private: Real M&A
BlackBerry Ltd. (BBRY)’s fate seemed to be decided two years ago after its market value plummeted by $65 billion. It took losing another $13 billion since then for the board to hang a for-sale sign.
The smartphone maker yesterday said for the first time it’s considering a sale, after a string of quarterly revenue declines in the past two years pushed its market value down to $5.1 billion as of last week.
That’s left the company as the cheapest among communications-equipment rivals in North America, according to data compiled by Bloomberg. Even at that valuation, the latest setback with its new BlackBerry 10 may rule out interest from most strategic buyers, making a buyout in conjunction with Canadian investors or a breakup the likeliest outcome.
“It makes sense that they might look at throwing in the towel as a public company,” said Malcolm Polley, who manages $1.1 billion as chief investment officer at Stewart Capital Advisors LLC in Indiana, Pennsylvania. “They’re trying to turn themselves around and make themselves relevant again.”
Canada Pension Plan Investment Board said last week it would weigh an investment if the company decided to go private, and Alberta Investment Management Corp. echoed that sentiment yesterday.
BlackBerry, whose market value peaked at $83 billion in 2008, said yesterday that a special committee of the board has been tasked with finding ways to enhance its value and scale, including an outright sale, joint ventures or partnerships. It’s the strongest indication yet that the company won’t remain independent.
Last year, BlackBerry hired two banks to help evaluate options, none of which explicitly included a sale. Chief Executive Officer Thorsten Heins had said that it wasn’t the “main direction” he was considering at the time.
“This has certainly been a long time coming,” Walter Todd, who helps oversee $950 million as chief investment officer of Greenwood Capital Associates LLC in Greenwood, South Carolina, said in a phone interview. “They need to do something, whether that’s taking themselves private or selling out to another company. That said, there’s not a ton of strategic buyers left that would be interested.”
The stock rose 10 percent to $10.78 yesterday, giving the company a market value of $5.65 billion. At a 50 percent discount to its revenue, BlackBerry has the cheapest price-sales ratio among North American communications-equipment makers with market capitalizations exceeding $500 million, data compiled by Bloomberg show.
Today, BlackBerry climbed 1.4 percent to $10.93.
BlackBerry’s board may be realizing what others have seen coming for at least two years. In 2011, investors and analysts told Bloomberg News that BlackBerry was a takeover candidate and that Microsoft Corp. (MSFT), Dell Inc. (DELL) and Samsung Electronics Co. were among likely suitors at the time.
Since then, Samsung has catapulted to one of the top sellers in the U.S. smartphone market with its Galaxy device, and Dell is in the midst of its own going-private transaction. While Microsoft is still a possible buyer, Todd of Greenwood Capital, a Microsoft shareholder, said he hopes it doesn’t bid for BlackBerry.
Samsung said in an e-mailed statement that the company “is not considering the acquisition of BlackBerry.” Dell declined to comment, and a representative for Microsoft didn’t immediately return a phone call seeking comment.
In April 2012, UBS AG analyst Phillip Huang said BlackBerry’s fate and any potential takeover rested on the success of its Z10 and Q10 devices. So far, the lineup’s debut has been lackluster, missing analysts’ shipment estimates and failing to stem customer losses. The company posted a net loss last quarter.
A leveraged buyout is a feasible option, according to Peter Misek, a New York-based analyst at Jefferies Group LLC. BlackBerry’s largest shareholder, Fairfax Financial Holdings Ltd. (FFH), and some of Canada’s pension plans are probably considering taking the smartphone maker private, he said in a research note yesterday.
Prem Watsa, CEO of Fairfax Financial, is stepping down from BlackBerry’s board, raising the possibility he may play a role in the outcome of the strategic review. Watsa said his firm has no intention of selling its BlackBerry stake, which was 9.9 percent as of March 31, data compiled by Bloomberg show.
If holders of 15 percent of BlackBerry’s equity were to participate in a buyout, the remaining shareholders could be bought out for $15 a share, Misek estimates.
Canada Pension CEO Mark Wiseman said Aug. 9 that the country’s second-largest pension fund manager would take “a hard look at” BlackBerry if it were to go private. Canada Pension owned 4.6 million BlackBerry shares as of March 31, according to its website. Linda Sims, a spokeswoman, declined to comment further.
A private-equity firm could pay about $14 a share for BlackBerry if it can boost earnings before interest, taxes, depreciation and amortization, Steven Li, a Toronto-based analyst at Raymond James Financial Inc., wrote in a report yesterday. If the company’s Ebitda doesn’t grow, a firm could pay only about $10.50 a share to get a similar return, he said.
One option for BlackBerry is to explore a breakup of the company that sells it off in pieces, according to a person familiar with the matter, who asked not to be identified discussing a private matter.
Adam Emery, a spokesman for BlackBerry, declined to comment on whether the company will pursue a breakup by selling assets separately.
In a liquidation, where the business is broken up and sold in pieces to various bidders, BlackBerry may be valued at $7 to $15 a share, Li estimates. BlackBerry’s assets include technology patents valued at $1.6 billion and licenses worth as much as $824 million, he estimates.
Determining a takeout price that will satisfy BlackBerry shareholders may be a challenge, according to T. Michael Walkley, a Minneapolis-based analyst at Canaccord Financial Inc. He recommends selling the shares and values the company at about $8 apiece based on the sum of its parts.
“We’ve thought that they would have to eventually sell the assets because we didn’t think BlackBerry 10 could return the company to sustained profits,” Walkley said in a phone interview. “I think they see the writing on the wall.”
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