BlackBerry (NASDAQ:BBRY) was once the most popular smartphone maker in the world. But things did not last long. The company is now a money bleeding mess, having lost almost $1 billion last quarter alone, with revenue dropping by 45%. It's a sad story for what was once the most valuable company in Canada. But there will soon be a happy ending, sort of.
BlackBerry gained it's massive following not because of it's appeal to regular consumer users, but because it was the communication device of choice for millions of corporate users. BlackBerry focused on delivering secure communication services over its private enterprise server network and this allowed it to win over enterprise customers worldwide. This is exactly the same technology which will come to its rescue again and it's the precise reason Apple Inc (NASDAQ:AAPL) will soon see fit to enter negotiations to purchase the company. The blogosphere and many corporate analysts have been speculating about this union for a while, and I think now is finally the moment of truth.
Let's make one thing absolutely clear, Apple does not need to buy BlackBerry. Apple has it's own iMessage service which is comparable although not identical to the BlackBerry messaging service. It can be argued that most services offered by Apple are already better and in fact more established than those offered by BlackBerry. Regardless of this, there are some very compelling reasons for Apple to spend a tiny fraction of its immense cash hoard and buy this once great company.
The main reason that Apple should buy BlackBerry is simply to keep it out of everybody else's hands. Does Apple really want to see Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) or Google (NASDAQ:GOOG) takeover BlackBerry and gain an instant position in the competitive smartphone market? With almost $150 billion dollars just sitting dormant on its balance sheet, Apple could casually toss BlackBerry a few bones and put it out of its misery. Even if they shuttered the company and never sold another BlackBerry smartphone, they would eliminate a competitor and keep a valuable property from getting into a large competitors hands.
BlackBerry still has a large corporate user following which could be used by Apple to help it gain traction in the enterprise market. Enterprise users were early adopters of the BlackBerry platform and BlackBerry smartphones still hold a strong position in the corporate device market. Furthermore, corporate clients with large established IT departments are often slow to change their buying habits. There is a reluctance to completely switch platforms as this involves not only buying new devices, but also retraining workers in their use. Apple would be in a position to continue offering BlackBerry support to established clients while slowly integrating certain aspects of the BlackBerry platform into the iPhone ecosystem.
The BlackBerry Enterprise Server infrastructure is still the most secure technology for corporate communication. In a world where security, privacy and secrecy is of utmost concern, Apple would be able to instantly capitalize on the integration of BlackBerry secure solutions into their own products. Even as Apple improves its own proprietary secure sharing technology, it would benefit directly from the name recognition that the BlackBerry encryption features have been known and respected for.
Patents and infringement litigation are huge issues for all technology companies. Even given the rapid pace of innovation in the mobile device space, old patents often come back to haunt companies. BlackBerry has thousands of valuable patents, estimated by some analysts to be worth almost $3 billion. In 2011, it joined forces with Microsoft and Sony to purchase a portfolio of patents from Nortel for $4.5 billion. And in 2012 BlackBerry was part of a consortium which included Microsoft, Facebook, Google and Samsung which bought a portfolio of patents from Kodak for $525 million. The bottom line is that even if Apple had no immediate use for the BlackBerry patents, they would benefit by having that intellectual property under their control and inaccessible to all other competitors. Intellectual property rights are a ruthless business, but for a company like Apple, which is facing tough competition for all sides, it must play all its cards in order to maintain dominance.
BlackBerry is currently entertaining a takeover proposal from Fairfax Financial Holdings which values the company at $4.7 billion. From a balance sheet perspective, BlackBerry has zero debt, and cash and short term investments of about $2.6 billion, according to their latest quarterly release. Furthermore, they have a shareholder equity balance of $8.4 billion. Doing the calculations, we can see that the current offer values BlackBerry at less than 60% of it's book value. Even for a money losing company, this seems extremely low. Assuming no other bidders come forward, it would seem that Apple would be able to purchase BlackBerry for about $5 billion or less. With almost $150 billion in cash on their balance sheet, this would represent a negligible investment for Apple.
BlackBerry's days as an independent, public company are numbered. Their market position has been weakened substantially over the last 2 years and this has left them in a vulnerable position. Notwithstanding, the company still has a large user base and valuable intellectual property holdings. With proper technological integration, the BlackBerry platform would serve to bolster Apple's offerings in the enterprise market and keep a valuable property out of reach from competitors. A takeover of BlackBerry by Apple is a logical and ideal choice for both companies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.