Troubled Canadian phone maker BlackBerry Limited (BBRY) is still looking for a new buyer. The Wall Street Journal published a report saying that Facebook's (FB) management met with BlackBerry executives last week. The article suggested it was a possible takeover bid by Facebook. Although no official source has confirmed the veracity of this story, BlackBerry's stock rallied 2% higher.
BlackBerry is hemorrhaging big losses. As of March 2013, the company suffered a $1.22 billion in operating losses - a sharp decline from last year's $1.49 billion operating net income. Look back 3 years, in 2011 and 2010, BlackBerry enjoyed operating incomes of $4.64 billion and $3.26 billion. This rapid reversal of fortune is mainly because BlackBerry lost 33% of its smartphone market share to Android and Apple (AAPL).
This sad turn of events for the Canadian company was noted and equally punished by the stock market. BlackBerry's share was trading at around $18 last January 2013 but after the dismal February financial report, it rapidly declined to $8.00++ level.
Nevertheless, the possibility of a takeover makes BlackBerry a cheap short-term bet. It's a high-risk gamble but the rewards can be significant. If Wall Street Journal is right on the money about Facebook buying BlackBerry, the stock can go as high as $10 or $11. BlackBerry is trading at $8.14 at the moment and deep-stack short-term investors can afford to bet on BlackBerry.
Facebook has enough cash money, $10 billion, to make a straight 100% buy-out of BlackBerry if the two parties agree on the right price. BlackBerry has already an outstanding $9 per share offer from Prem Watsa's FairFax Financial Ltd. Watsa's offer is good until November 4. However, the management, as per stockholders demand, is still shopping around for higher bids.
Cash-rich companies like SAP (SAP), Cisco (CSCO), and even Lenovo (LNVGY) expressed their interest in acquiring BlackBerry. So the Wall Street Journal's story on Facebook's possible takeover bid might just be true. The world's largest social networking company is certainly learning from Google's (GOOG) $12 billion buy-out of Motorola (MSI). Zuckerberg's team must have realized that Facebook's 1.2 billion-count of members has reached or will soon be peaking already, so they need to diversify their source of future growth.
Microsoft (MSFT) also bought Nokia's (NOK) mobile phone unit last month. The latest trend now is for software-only companies to expand to hardware-based revenue source so as to consolidate their new strategy. This software/hardware strategy has made Apple, Inc. the most valuable tech company in the world today.
Will Facebook Pay More than $9
Fairfax's offer of $9 per share was deemed unfair by the current majority of BlackBerry stockholders. No company has made a better offer yet. Is BlackBerry really a losing cause that nobody seems to recognize its real intrinsic value? Math-savvy poker professionals do not only consider by-the-book pot odds to make winning bets. They also take into consideration the wonderful magic hidden inside implied odds and statistical probabilities.
The same poker principle can be applied to betting on BlackBerry. Sure, looking at its balance sheet, it is worth around $9 but if you take into consideration that BlackBerry owns tons of patent licenses, it is worth much more than $9 per share. Patent licensing is a future goldmine in this increasing world of technological spider web of innovations. Everybody is paying somebody to use a simple patented component parts or design inside a phone, tablet, vacuum cleaner or toothbrush.
If boy genius Mark Zuckerberg is as smart as he is reputed to be, he already understands the value of BlackBerry patents. The BlackBerry brand is also a premium intellectual property that is still trusted by governments and big Fortune 500 companies. BlackBerry's impregnable security infrastructure for BBM means it will continue to rule the government/corporate sector.
Facebook might just pay more than $9 if the deal goes through.