Still Clearing The Confusion
BlackBerry (NASDAQ:BBRY) has been the poster child of the news as of late. Some think the U.S. government was angered with its loss of the spotlight so it decided to not decide on the debt ceiling issue - just kidding. I have been writing lately about the company (I,II,III, IV) to clear up confusion with the company's recent events - this article will continue that process. The first article of the four sparked the most discussion relevant to the company - proof that a look into a company's SEC filings can be the best source of information on a company in light of widespread speculation.
BlackBerry has had many events that have led the individual to believe that it is shoring up all loose ends to smooth the path for a possible buyer. Although a buyer should be able to handle the company's day-to-day affairs intelligently to ensure success, the closing of many pending problems can ease the transition for a buyer.
- BlackBerry reassures customers of its business - a drive to keep customers to maintain the business for a possible buyer.
- BlackBerry settles lawsuit with Kik over instant-messaging app
- BlackBerry settles all litigation with WiLan (NASDAQ:WILN)
- Rogers flipped on not carrying the Z30, now it will as customers want the device.
These events to shore up the company's loose ends prove more than anything that BlackBerry is moving forward with a sale. BlackBerry is likely taking a fast-route sale stance as the company is acting quickly to round off the edges.
Opening Up Confusion
There have been many reports on who exactly will buy BlackBerry. Below you will see a list of who has expressed interest in the company.
- Cerberus signed a NDA with BlackBerry and is in the early stages of considering a takeover bid for the distressed company.
- Mike Lazaridis, along with Douglas Fregin are discussing a joint bid for the company. The original co-founders still have an 8 percent stake in the company.
- Bloomberg reported the company may be open to a piece-meal sale. The company was in talks with Google (NASDAQ:GOOG), Cisco (NASDAQ:CSCO) and SAP (NYSE:SAP) about a break up related deal, although nothing material has surfaced.
- Mark Wiseman is also considering a bid for the berry - he is the CEO of the Canada Pension Plan Investment Board.
- BlackBerry signed a letter of intent to be acquired by a group led by Prem Watsa for $9 per share.
There is no lack of possible buyers, although there is a clear lack of conviction on both sides as to who will buy the company.
Clearing Up Some Confusion
All of these news events are subject to events that may be unbeknownst to those who simply read the news blips. First off, Cerberus signed a NDA agreement with BlackBerry simply to see the books, so it can see if a bid is worthwhile. Moreover, if a bid is worthwhile by any other party BlackBerry would then have to take into account the termination fee of $0.30 to $0.50 per share payable to the Fairfax-Led consortium. FairFax Capital Holdings (OTCQB:FRFHF) is also having trouble finding financing for its possible purchase, although if the deal is unable to complete on its end BlackBerry would likely not be subject to the termination fee per share.
On another group note, the purchase of BlackBerry could come together as the consortium that FairFax has backed. FairFax is already the largest shareholder of the company and has expressed interest in courting others such as Canada's largest pension funds to finance the purchase of BlackBerry. Also, Prem Watsa has been in talks with Mike Lazaridis to take the company private as well. These facts concur logically that a group effort may be the easiest, even though the parties of Fairfax's Consortium were not disclosed, these interested parties could be the most logical additions to finance the deal.
The path with the least resistance is to take the remaining portion of the company private through the Fairfax led consortium. First, this is due to the fact that BlackBerry would not have to flip-flop on its first buyer and face paying the up to a 50 cent charge per share (~ about 6.1% of the current share price at $8.20). Moreover, by purchasing the shares through the consortium, outside of the involved parties' original outstanding ownership, it will lead to a much cheaper buy price for the company.
FairFax owns roughly 10% of the company and Mike Lazaridis and his partner own around 8% - if these two parties come together with the additional financial backing of Mark Wiseman and Cerebrus to buy the remaining 82% of outstanding shares, the buyout should be easy. This is due to the fact that individual buyers like Prem Watsa are having trouble securing financing for the deal, a piece-meal deal could erode the company's business value and a bidding war between these parties is unlikely for a distressed company.
A consortium of these parties would purchase 82% of the shares outstanding, amounting to an offer that lowers the current price of $4.7 billion to $3.854 billion. Of course in this situation Prem Watsa and Mike Lazaridis and his partner would retain ownership of their portions since they are not being purchased outright – to lower the total price of the buyout.
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