Even after making radical changes such as inducting new management, abandoning key products and firing thousands of employees, BlackBerry (BBRY) has been facing an uphill task in recapturing its lost smartphone market. The Canadian government has been trying to help BBRY in its own way to regain its leadership position in the mobile devices industry. However, the government actions have not totally been beneficial for shareholders. The Canadian government is not unique in helping domestic companies, as most states go to great lengths in helping their local industry. There have been many instances of governments bailing out bankrupt companies. The U.S. provided huge loans to save automobile and finance companies during the Lehman crisis. There have been numerous cases where the Government has played a vital role in saving a company's fortunes.
First Solar (FSLR) & US Exim Bank - US Exim Bank supports American companies through cheap vendor financing. The US Exim Bank has provided financing to numerous solar projects in India built by First Solar. Exim Bank authorized a $19 million loan guarantee to PNC Bank in Pittsburgh, Pa., for a long-term fixed-interest rate loan supporting sales of thin-film solar modules by First Solar to a 15-MW solar power plant in the state of Gujarat, India. There have been a number of such financings by the US Exim Bank, which has helped FSLR become the No.1 solar panel supplier to the fast growing Indian solar market. The U.S. government is now pressuring the Indian government to remove the "domestic content" restrictions in the federal solar subsidy policy.
Suntech & Chinese Government - The solar industry too is caught in a vicious downturn, as supply far exceeds capacity through the supply chain. Despite the fast growing global demand, prices of solar panels have kept on going down and solar companies have bled billions of dollars. In spite of being effectively bankrupt, Suntech continues to operate as the local government cannot allow the loss of more than 10,000 Suntech jobs. While central government officials have indicated that they will not give any more monetary help to Suntech, the local and provincial governments have refused to toe the central line in the past.
Huawei, ZTE & China Development Bank - The China Development Bank entered into a $20 billion financing agreement with telecom equipment maker ZTE, which includes financing facilities for the company's overseas projects and credit facilities for the company. Likewise, Huawei has also received huge support from the Chinese Government. It is believed that $30 billion facility was provided to Huawei by the China Development Bank.
I have given just three instances to show how national governments support local companies. There are many other examples to show how governments support "national champions." France is another vocal supporter of local companies, with the Holland government rumored to be in talks to support beleaguered telecom equipment giant Alcatel-Lucent (ALU). Let's now see how the Canadian government has intervened on BBRY's behalf.
Canadian government gives credit line to Telefonica
Telefonica, the Spanish company, is one of the biggest telecommunication carriers in the world. Telefonica has a huge customer base of 315.7 million with a presence in 25 countries. The Canadian Government has granted a loan of euro 170 million to Telefonica to purchase BlackBerry smartphones and services. This loan will help BlackBerry increase its revenues substantially in the European and Latin American markets. This move has definitely improved BBRY's prospect as it gives it a leg up over other competitors like Samsung (OTC:SSNGY) and Apple (AAPL).
Export Development Canada (EDC) announced the huge loan of working capital to the Spanish-owned company, which it said would "facilitate BlackBerry market share growth within Telefónica". Such loan facilities, which in effect have the backing of the Canadian government, are usually made to ensure that the buyer has sufficient funds to make the purchase. But they can also minimise the risk for the buyer by limiting the amount of money provided upfront.
Canadian Government's reluctance over Lenovo buying BBRY
As I had pointed out earlier BBRY would be a desirable target for acquisition by a bigger technology company. BlackBerry needs more resources to stay in the market, which it will get from its parent company. Given its cheap valuation it will be a favorable deal for both the parties. However, the Canadian Government seems overly protective about BlackBerry and reluctant in letting a Chinese company buy BlackBerry. BBRY stock jumped after the news of Lenovo buying the company, but the pop proved short-lived as the Canadian government seemed opposed to the move. BlackBerry technology is used in many government departments and after the failure of Nortel, BBRY is the only major Canadian technology company left. There were also concerns about the public reaction if BBRY had a Chinese ownership. I think that this action has hurt shareholder interests as Lenovo might have paid a huge premium to BBRY's current stock price.
Canada's industry minister on Monday said he hoped Research in Motion Ltd. would remain a national champion but added he did not know what would happen to the mobile device maker, given the "very aggressive" telecommunications sector. Mr. Paradis said that if Lenovo did make a bid, the Canadian government could examine it using national security guidelines designed to block foreign governments from gaining control over crucial parts of the economy."As the Industry Minister I don't want to send a signal and I don't want it to look like I prejudged a deal or not," he added.Industry analysts, noting the domestic furor caused when Chinese state-owned CNOOC Ltd. last year made a bid for Canadian energy firm Nexen Inc, say it is highly unlikely Ottawa would allow BlackBerry to be sold to a Chinese firm.
Government intervention in the affairs of publicly listed companies can work both ways. Chinese companies have benefited massively from the huge financial and political support given by the Chinese government and banks. However, it has worked against them as well, since foreign states view them suspiciously because of their ties with the government. A new U.S. law prevents Huawei and ZTE from selling telecom equipment in the U.S. Canadian government has also helped BBRY by increasing its sales. On the other hand, I think it has negatively affected shareholders because foreign companies might be reluctant to bid for BBRY despite its depressed stock price.