BlackBerry Drop Reveals Biggest Discount of North American Deals

Investors are growing more skeptical that a tentative $4.7 billion bid for smartphone maker BlackBerry Ltd. will succeed, with the stock trading at the biggest discount among similar North American takeovers.

Fairfax Financial Holdings Ltd.’s $9-a-share tentative offer for BlackBerry is 17 percent higher than the current stock price, the widest spread of 109 announced deals worth $1 billion or more, according to data compiled by Bloomberg. BlackBerry fell 0.4 percent to $7.70 at 1 p.m. in New York, dropping its market value to $4 billion. The stock closed at $7.69.

The slide reflects shareholder concerns about Fairfax Chief Executive Officer Prem Watsa’s ability to secure his partners’ commitment and financing before a Nov. 4 deadline. Watsa said when he announced the Sept. 23 offer that he had yet to secure financing and would only name his partners after they had done the due diligence and were fully committed.

“The reservations are adding up,” Sachin Shah, a strategist in special situations and merger arbitrage at New York-based Albert Fried & Co., said in a telephone interview. “It keeps on trading based on people’s interpretation of what other people think is going to happen rather than what Prem is saying will happen.”

Since Toronto-based Fairfax announced its letter of intent, BlackBerry has given more details about its deteriorating financial situation. The Waterloo, Ontario-based company said in an Oct. 1 filing that it will record costs of about $400 million this fiscal year and early next year, four times the amount it originally projected, as it cuts staff by 40 percent and sells equipment and real estate.

The stock has tumbled 35 percent this year and is trading 95 percent off its 2008 peak.

Lower Bid

The trading gap also may reflect concern that Fairfax will lower its bid given the company’s deteriorating prospects, said Michael Walkley, an analyst at Canaccord Genuity.

“The most likely outcome for BlackBerry is a sale to Fairfax Financial and its partners at a lower price of $7 post further diligence,” he said in a note this week.

BlackBerry has drawn interest from private-equity firm Cerberus Capital Management LP, according to a person with knowledge of the matter. Cerberus is looking to sign a confidentiality agreement with BlackBerry that would give it access to additional financial data, the person said.

“Unless you have a definitive merger agreement in place, financing lined up and, for that matter, a strategic buyer or party interested or involved, the market’s perception is not likely to change,” Shah said.

Before it's here, it's on the Bloomberg Terminal.