BlackBerry’s (BBRY) days as an independent public company may soon be over. With sales plummeting amid growing smartphone competition and BB10′s launch not helping much, the beleaguered handset maker announced Monday that it has formed a special committee to explore “strategic alternatives,” including a possible sale of the company. It is also likely that one of the board members, Prem Watsa, who resigned from BlackBerry’s board citing a conflict of interest, could be interested in taking the company private and turning it around away from the prying eyes of the public. Prem Watsa is currently the chief executive of BlackBerry’s largest shareholder, Fairfax Financial Holdings. Apart from Fairfax, it is not yet clear who the other suitors are but it is likely that BlackBerry would draw the most value when broken away and sold in parts.
While BlackBerry’s patent portfolio could interest a number of buyers, what could be the most lucrative for a player in the smartphone industry is BlackBerry’s secure enterprise network. With the high-end smartphone market getting saturated, companies such as Samsung are looking to strengthen their enterprise offerings and diversify their revenues away from retail. Relationships with enterprises are generally more stable than consumers, as can be seen with BlackBerry whose high-margin Push Email service business continues to be profitable amid slumping hardware sales. By our estimates, the Push Email business is BlackBerry’s most valuable (more than 30% of our $12.50 price estimate) and cash-generating asset right now, and continues to be the gold-standard when it comes to enterprise security and solidity of service.
Services and Patents More Valuable Than Hardware
Microsoft, which is constantly looking to gain a toehold in the mobile industry, would also stand to gain quite a bit from BlackBerry’s enterprise strength. The largest software maker in the world has deep-seated relationships with a large number of enterprises around the world, which it could leverage to stem the loss of subscribers which the BlackBerry platform has seen recently. Adding BlackBerry-like mobile security features would help increase Windows Phone’s value proposition for the enterprise, which Microsoft could then market heavily by bundling it with its widely used Windows PC software. While Microsoft already has its Activesync mobile device management software, which has done well in the enterprise, having BES capabilities could help Windows Phone gain rapid traction in the enterprise mobile market.
The hardware business does not seem to be very valuable by itself given the sustained decline in market share, which has caused it to slip behind Windows Phone into the fourth place. But the mobile BB10 platform could attract the attention of a company like Samsung, which is probably looking to diversify away from Android given Google’s potential hardware aspirations with Motorola. BlackBerry has, in the past, showed a willingness in licensing out its BB10 platform to other vendors but Samsung is likely to be more interested in having its own OS to build an ecosystem around it. That said, there are already two heavily dominant mobile ecosystems around in the form of iOS and Android, and Windows Phone seems to be well on course to becoming the third one of some standing. A fourth mobile platform may therefore not command a premium and be only incremental to whatever value buyers attach to BlackBerry’s patent portfolio and services. At the same time, the fact that BB10 is built on QNX, a real-time operating system that is well suited for automobiles, could give the buyer a head-start in the emerging smartcar market and hence attract a substantial bid.
The BBM messaging service is another BlackBerry asset that could be valuable to a buyer looking to turn it into a big competitor to the likes of Whatsapp and WeChat. BlackBerry recently opened its BBM service to other platforms as well, possibly to make it more lucrative to a potential acquirer. BBM would also be attractive for a smartphone maker looking to build an ecosystem around its products, but the rise of cross-platform messaging apps has decreased BBM’s value-add to the end user. However, the popularity of BBM is still huge in some emerging markets, and it could be of some value to a predominantly emerging market smartphone player.
Disclosure: No positions