I continue to see a lot of financial analysis dissecting the "real" value of a share of Blackberry today. All investing interests aside, this 'offer' from Fairfax seems mighty fishy. The price, the timing, the people involved and the manner in which it was announced all add up to a big smoke & mirrors trick.
Some investors, like myself (and MANY more according to short interest), predicted nothing but further losses, poor sales and share price decline. Our opinions were rooted in historical performance, reading between the lines of the 'facts' shared by Blackberry, as well as current headlines streaming out of Waterloo, offering for several months nothing but confirmation that the truth was very bleak indeed.
Now, a $9/share 'offer' from Prem Watsa is put forth. Mr. Watsa recently resigned from Blackberry's Board of Directors, is CEO of Fairfax Financial, and a 10% share holder in Blackberry. A holding I am confident saying is well under water at the moment.
I won't share my view of Blackberry's true per share value. As proven in far too many optimistic articles on Blackberry, the assumptions necessary to reach any conclusion multiply quickly, making that conclusion ultimately worthless and impossible to support in a lively debate. I've learned no one is hoping to change their minds around here, so I will simply move on from that type of discussion.
What I do want to discuss is that so many aspects of this deal appear to be at best questionable, at worst underhanded and shady.
Offer price of $9 even?
I'd like to see the bottoms up analysis run by Fairfax to come to $9 on the nose. I've never before seen a takeout offer, after due diligence is complete, come to a perfectly round dollar figure. Highly questionable.
Additionally, how do you offer a price per share and THEN start your due diligence? I would never invest one dollar in a company in that manner, let alone 5 BILLION of them!
Timing of the offer?
Obviously Blackberry's board was scrambling to announce something before being forced to face the music on the September 27th earnings call. They simply could not allow Heins & team to walk into the slaughter and open their kimonos without the backdrop of an offer to support the share price. I dare say without the $9 placeholder of an offer on the table, the truth about Blackberry's latest quarter might have resulted in yet another 30% share price collapse from the roughly $8 it was hovering at on Monday. It certainly was in freefall after the pre-announcement and I can't think of anything that would have stopped it. The stock could have hit $6 by Friday without much resistance. Further supporting my assertion that this $9 offer was purely to stop the bleeding.
Consider this deal from the perspective of a Fairfax shareholder. Blackberry's share price has been in steady decline for months. Their pre-announcement was disastrous. The call on Friday is expected to shed even worse light on current state of affairs. Every reason to believe the shares could go to $6, yet, before we do our due diligence, days before we hear more about last quarter, and one day after we hear a pre-announcement that almost put the final nail in the coffin of this company...THAT is when we felt it was time to make an offer at a premium to the current share price?
Not much explanation needed here. A 10% sharehoder, who is deep under water on his position, previous board member with a lot of personal connections...watching the company hopelessly spiral into oblivion...he just happens to be the one person on earth who sees the real future value and shows interest in buying the company? Shady.
Details of the "Offer"
First, bear in mind, this is a letter of intent to make a deal and Prem Watsa has reserved the right to back out without penalty. Good thing for that, because if I was a shareholder of Fairfax I would be furious that we were the only bidders in sight for a company with a plummeting share price and zero future prospects, yet our company felt now was the time felt it was important to offer a premium to the current share price!? Outrageous. Also, Prem Watsa is rolling his 10% stake into the offer and 'hoping' he can drum up interest to fund the rest. You have to wonder, if he doesn't have the funding locked down, how can this be considered an offer to buy the company? I could write a letter to Tiger Woods tonight, offering $40M for his mansion in Florida. If I don't have the money yet, is that really an offer?
The $9 share price is a placeholder, thrown out there to stop the bleeding. My suspicion is, Prem's old buddies on Blackberry's board knew they would get slaughtered on Friday's earnings call if they didn't announce something to hold up the share price. Prem issues this non-offer with a nice, round $9 attached, and no commitment on his part, simply to hold the stock price steady until the storm passes. Certainly, if I was a Fairfax employee and/or shareholder I would be outraged at the carelessness with which Prem Watsa dangles $5B of company money around, and drags Fairfax's reputation down as part of a magic act intended to bail out his old friends in the board room at Blackberry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.