It seems like deja vu as we first wrote on BlackBerry (BBRY) in December 2012 and the headline was "RIM's Rise Likely For Takeover Talk And Not BB10". Here's the intro to the article: "Last week we witnessed Research In Motion's (RIMM) shares increase from $11.85 to $14.04 on Friday. This came on top of unusually high trading volume." It took a while, but it seems that the large shareholders are starting to come around to the fact that a strategic alternative may be the best thing for the company as an early report from Reuters this morning proclaims:
"Exclusive: BlackBerry open to going private, sources say"
This may in fact be due to the large insider and board member Prem Watsa, who is considered a classic "insider". Watsa purportedly is the largest BBRY holder as reported here:
Prem Watsa still owns a massive stake in the company, 28% of shares outstanding. His trading history shows a 10% loss on more than 51.8 million shares bought at an average price of $9.94.
But Fairfax does not show up on Whalewisdom's 13F and 13G filers list. The top holders according to Whalewisdom are Primecap Management with 26.2 million shares, Bank of Montreal with 6.3 million shares, CIBC with 6.1 million shares, Morgan Stanley 6.3 million and Yachtman Asset Management with 5.8 million shares as of June 30th, 2013. Of these, only Primecap and Yachtman should be considered as individual shareholders as the banks are the "Street name" holders for retail investors. What's interesting about the filings report is that it came out two days after BBRY released its latest quarterly earnings report. Moreover, the Whalewisdom site shows that 39 out of 127 or roughly 1/3 of the firms that were on the list as of March 31st, 2013 had sold all their shares as of June 30, 2013. Needless to say, there has been a lot of selling pressure on this name over the last 40 days. This doesn't include the still massive short interest in the stock totaling over 160 million shares as of July 15th and the corresponding 5.5% negative rebate annual borrowing cost which has dropped recently from 10%, but seems to be rising again with increasing tightening in share borrowing availability.
Our take on the situation is that Prem Watsa and Primecap, who together hold close to 77 million shares are starting to make waves in Waterloo, Canada where BBRY is headquartered. Prem needs to get his shares above his reported $9.94 cost basis. We think breaking BBRY up could fetch over $20 per share. An outright sale is probably unlikely at this point, but not totally out of the picture. A deal along the lines of what is being proposed at Dell (DELL) is more likely, whether it's through an activist like Mark Rachesky or Carl Icahn who are both familiar with Canadian waters. Reuters mentions Silverlake Partners as having strategic discussions with BBRY, which may be the second shoe to drop if they are the successful bidder on DELL. Anyway you look at this situation, you can see change on the horizon for BBRY. CEO Thorsten Heins didn't help the situation with his "clam up" announcement on guidance for next quarter sales. We think more transparency wins the day with investors, not less. This fact is surely appreciated by BBRY insider Prem Watsa. BBRY shares are likely to rise back into the double digits as they seem open to discussions with third parties. Had they been more open all along the way, they could have had these discussions with their share price in the mid teens rather than at these levels. But you can't go backwards, full steam ahead into getting a good deal done is what we would like to see here at BBRY.