BlackBerry's Decision Day: Don't Extend Fairfax Deadline And Auction Off Company Parts

| About: BlackBerry Ltd. (BBRY)

Today is the end of the due diligence period for insider Prem Watsa's Fairfax Financial as it relates to their contingent agreement to buy BlackBerry (NASDAQ:BBRY) for $9 per share. As the story floated by Bloomberg titled "Fairfax Said to Be Short of Financing for BlackBerry Bid" reveals doubt for his acquisition, Prem may well be asking for an extension of time on his proposal. Our suggestion to BBRY would be to not give the extension which would eliminate the break-up fees if another bidder emerges. Things may be heating up as SA reported on Friday:

Qualcomm's (NASDAQ:QCOM) name gets thrown into BlackBerry M&A report

  • A couple hours after reporting Cerberus is exploring a joint bid for BlackBerry with co-founders Mike Lazaridis and Doug Fregin, the WSJ reports Qualcomm is in talks to join the effort
  • It's unlikely Qualcomm would have much interest in BlackBerry's hardware ops, which compete against the mobile chip/IP giant's largest customers. But it could find some value in BlackBerry's sizable patent portfolio.

Our suggestion is BBRY is to sell parts of the company separately, thereby eliminating the discount for swallowing the whole company at once. Moreover, this will allow shareholders to continue to own the most exciting part of the company: BBM. After downloading and using the BBM messenger, we think BBRY actually may have a winner on its hands with this service. BBM can actually be worth more than the current $4.3 billion market cap of BBRY. The Guardian reported:

"BlackBerry BBM gains 20m new users from first week on iPhone and Android Messaging service now has more than 80m monthly active users, with 60m on BlackBerry smartphones, but brings barriers down on rival smartphones"

But in order to get real viral growth, BBRY has to get down and dirty with a gorilla marketing campaign. Crackberry had a list of suggestions how to do this on their Podcast which we think is worth listening to here. The most important suggestion is to simplify the invitation process, especially to screen the contact list inside a new users phone to see who has BBM pins already and to notify them of your new pin. This alone could aggressively add user interaction and usage as well. The numbers start to get compelling as we can see by starting with a base of the 80 million user base that The Guardian has provided. Assuming a conservative value of $50 per user [Facebook (NASDAQ:FB) is over $100], this brings us to a $4 billion value for BBM alone. The key then is how to monetize this service. Andrew Bocking is a very talented engineer who is running the BBM platform. He has done a good job in rolling out a solid app for both the iPhone and Android devices. We think Andrew needs to have free reign to bring creative marketing ideas together with revenue generation to take BBM above and beyond the engagement of Whatsapp messaging users.

We have been consistent in our view that BBRY can be profitably sold off in parts and leaving the BBM as a standalone service. The parts not including BBM would bring at least $9 per share and leave shareholders with something of tremendous value and upside as the smartphone revolution continues to proliferate. An insider like Prem Watsa should not have the right to use his internal knowledge and former director and management relationships to strip helpless shareholders of BBRY's true value.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BBRY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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