After weeks of weighing a buyout of BlackBerry, the company’s largest stakeholder will instead lend US$1 billion to the struggling smartphone maker in hopes it can revamp its operations.
Fairfax Financial said Monday it has scrapped plans to purchase BlackBerry outright, but will lead a group of investors that will inject funds into the Waterloo, Ont.-based company, which will be under new management.
The news sent BlackBerry shares plunging to their lowest level in years, dropping $1.32 or 16.4% to C$6.76 on the Toronto Stock Exchange and $1.17 to US$6.60 on Nasdaq.
Both BlackBerry chief executive Thorsten Heins and the chair of its board of directors, Barbara Stymiest, would be replaced by John Chen, who has experience in the technology sector, when the deal closes.
Among other things, Chen was chairman and CEO of Sybase from 1998 until the data management company was acquired in 2010 by SAP AG. Prior to Sybase, Chen held executive positions at Siemens AG, Pyramid Technology Corp., and Burroughs Corp.
BlackBerry’s board will also make room for a return of Prem Watsa, who is president and CEO of Fairfax Financial, the largest shareholder in BlackBerry.
Watsa originally joined the board when the company was still called Research in Motion but left some months ago before BlackBerry held a strategic review in August. He eventually announced on Sept. 23 that Fairfax would lead a group that would pay US$9 per BlackBerry share, although there were many conditions attached including a six-week period for due diligence.
That deal valued BlackBerry at US$4.7 billion, although most of the money was to come from other institutional investors that Fairfax planned to line up as partners.
Carmi Levy, an independent tech analyst, said Monday’s announcement wasn’t the end of a possible BlackBerry sale, but it was clearly not what the company had hoped for when it put itself on the block.
“It would have been so much simpler for them to just accept a cheque from a large suitor and be bought out,” said Levy.
“They already admitted a year and a half ago they couldn’t go it alone; now they have to go it alone. There’s no good news in this story at this point. It adds an additional layer of challenge to a company that didn’t need it.”
The new plan is for Fairfax to lead a group that will buy US$1 billion of convertible debt – a type of security that will pays six per cent interest annually but can be converted into BlackBerry shares at US$10 each.
“The BlackBerry board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders,” Stymiest said in a statement.
“This financing provides an immediate cash injection on terms favourable to BlackBerry, enhancing our substantial cash position.”
The billion dollars will buy the company some time to turn itself around, Levy said, and noted that Chen was a good choice to lead BlackBerry because he’s someone with credibility in the mobile enterprise space.
“He recognized the value of this technology long before many others in the industry,” Levy said. “If anyone’s going to return credibility to Blackberry’s reputation in this space, it will likely be him.”
But while he still sees the sale of the BlackBerry as a likely outcome, given the various other suitors who had expressed interest in the company, Levy said any additional bids will likely cheaper than what had originally been proposed.
“Investors have already voted with their feet. Share values are down significantly in pre-market trading because a number of them have decided enough is enough,” Levy said.
“This was a bad situation to begin with, it got worse throughout, and unfortunately for some investors, they reached the point of no return.”
