BlackBerry's $4.7B Sale Seen As Raw Deal For Shareholders

The deed is done. BlackBerry has received a letter of intent to be acquired for $4.7 billion from an existing shareholder that owns nearly 10% of the struggling mobile-device maker.

Fairfax Financial is an insurance company whose wealthy founder, Prem Watsa, stood down from BlackBerry’s board a month ago in a bid to avoid criticism of conflict of interest.
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That hasn’t stopped investors from looking at the deal to go private and shaking their heads. Kevin Stadtler of Stadtler Capital sold his shares last June when the company missed its fiscal-first-quarter  results. He’d held about 60,000 shares earlier this year, and is not impressed on behalf of the investors who stuck with BlackBerry to the end.

“They could have distributed the cash,” he says. “They could have shut down most of the business and bled off the cash to the benefit of existing shareholders.” Among the bad decisions made by the board was the reported purchase of a $20 million jet, he adds.

The real question concerns Watsa’s strategy for BlackBerry now that he has taken it private — assuming another suitor does not offer a higher bid. The company’s shares were trading at $8.82 in New York late Monday afternoon, just under the approximate sale price of $9, which suggests shareholders are not expecting a higher offer to come in. Fairfax Financial did not respond to a request for an interview with Watsa.

“What was the significant burden being private, versus being a public company?” asks Stadtler. One analyst was quoted in Reuters as saying that BlackBerry would be able to “restructure outside of the public eye,” but BlackBerry already announced 4,500 job cuts last Friday, and said it expected to report a quarterly loss of as much as $995 million.

“It’s a fire sale,” says Stadtler. “Ultimately the board of directors and the executives are responsible to maximize shareholder value and how have they maximized value by this transaction?”

BlackBerry over the years has come under greater pressure from competitors like Apple AAPL +4.97% and Samsung, and an industry increasingly moving towards product parity, says Brett T. Robinson, a visiting professor at the University of Notre Dame. “[Blackberry's] strategy to remain an enterprise product is shaky at best.”

Jan Dawson, chief telecoms analyst at Ovum agrees that taking BlackBerry private doesn’t solve its fundamental problems, and says the company lacked a long-term strategy. “Its announcement last week that no longer intends to pursue the consumer market is essentially the death knell for this business,” he says. “It’s likely that BlackBerry will be out of the devices business entirely by the middle of next year.”

“Unless Fairfax plans to radically change or accelerate BlackBerry’s strategy, it’s unlikely to be able to turn the company around,” Dawson adds. “And that means we’re likely seeing the beginning of the end for one of the most iconic brands in mobile technology.”