Blackberry Has Many Big Time Suitors

Nov. 4.13 | About: BlackBerry Ltd. (BBRY)

What happens when a leading consumer telecommunication company valued at 4.7 billion dollar company is facing troubled times?

A bidding war begins. It is, inevitably a fierce one, for a vast commercial empire is at stake; an empire that is not only measured by its stock price in the financial markets, but by such abstractions as mindshare and potential for growth through innovation.

This is the fate of the embattled Canadian Company, Blackberry (NASDAQ:BBRY), once a pioneer in the mobile electronics industry. The company is now actively under consideration by a number of the world's largest companies. Mergers and acquisitions are one of the most powerful ways for any company to expand its business and gain sizeable territory in new markets.

Blackberry's Fall from Grace

Blackberry lost its foothold in the high-end Smartphone industry when Apple (NASDAQ:AAPL) and Samsung Electronics Ltd began to engineer highly-innovative new generation mobile phones that won the overwhelming approval of the electronic consumer market. When this rapid innovation by Apple and Samsung left Blackberry behind, it paved the way for acquisition proposals. More specifically, Blackberry had a steep revenue drop, reporting a $1 billion quarterly loss.

However, the reason for the loss of faith in the company by its investors was not the huge financial loss alone. This was the symptom of a much larger problem: the BlackBerry 10 phones and the BlackBerry Playbook tablet computer proved to be commercial failures. It is believed that this, more than anything else, led to the company losing hope and direction and deciding to offer itself up for sale.

Many Suitors, Messy Auction

There are many potential suitors, including Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), Lenovo, Fairfax Financial Holdings, Qualcomm (NASDAQ:QCOM) and Cerberus.

These companies are all looking to enter or expand their markets. Besides the obvious US and European markets, there are many emerging economies that could prove highly profitable like Southeast Asia, Russia, and Brazil.

Smartphones and tablets are now reckoned to be among the hottest consumer products in the world. These are consumer products that are amenable to innovation, are portable enough to ensure strong delivery mechanisms, and are flexible enough to adjust pricing. Rapid expansion and high profits are possible.

Who will Win the Bidding War?

While it is difficult to predict who will win the bidding war, a consortium consisting of Qualcomm, a wireless company, Cereberus Capital Management, a private equity firm, and Blackberry co-founders, Lazaridis and Fregin, stand a good chance in the somewhat chaotic auction process. The reason they are highly favored by analysts is that Qualcomm has telecommunication experience, Cerberus has the money, and Lazardis and Fregin, who have 8 percent of Blackberry's equity, know the business. Their closest competition is Fairfax Financial Holdings, which already owns 10 percent of the company. This Canadian insurance and investment firm is proposing a bid of nine dollar a share. However, some analysts consider Lenovo, a Chinese company, a serious contender, since it can access the money needed to win the bidding war and has the distributive power to open up the Southeast market.

Challenges

Whoever wins the bidding war will have to resolve three challenges:

First, how to stop Blackberry from hemorrhaging cash.

Second, how to move masses of unsold inventory.

Three, how to give the company direction after it had been upstaged by the popularity of iPhones and androids.

On one hand, it is highly unlikely that the new owners will pull Blackberry out of the phone business and point it in a new direction like focusing on creating apps for Iphones and Android devices or developing tighter security for wireless services. On the other hand, it remains unclear how the new owners will manage to revive Blackberry and reverse its fortunes. However, there may be one wildcard in this challenge: Blackberry has numerous patents, which might prove useful in creating new product lines.

Conclusion

Aggressive investors should consider buying a small position in this low price stock as big institutions circle the company.

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.