1. amazinglygraceless's Avatar
    BlackBerry Ltd (BBRY): BlackBerry: Fairfax Deal At Risk, Could A Bidding War Propel Shares Past $12? - Seeking Alpha


    BlackBerry Limited (BBRY) might be back in play. Lenovo (LNVGY.PK) is said to be sniffing out BlackBerry and considering a bid for the company. Fairfax Financial Holdings Ltd. run by Prem Watsa has made a preliminary offer acquire BlackBerry for $4.7 billion or $9 a share at the end of September and voiced his intentions to take the company private. Interestingly, BlackBerry shares trade about 9% below the preliminary offer. Investors apparently fear that Prem Watsa will have problems in putting up the purchase price. Prem Watsa has commented on those concerns:

    We wouldn't put our name to such a high-profile deal if we didn't feel confident that at the end of the day that our diligence would be fine and we'd be able to finance it Short term these things fluctuate, there is speculation one way, there's speculation the other way. We never pay too much attention to the marketplace.

    Given Fairfax Financial's deal completion record I would suggest that the acquisition could go through at $9 providing investors with an immediate 9% upside potential. Unless, of course, some other company swoops in and starts a bidding war for BlackBerry's substantial intangible assets.

    BlackBerry has lost a lot of market share over the last four years as its products face intense competition from Google's (GOOG) Android system and Apple's (AAPL) iOS. Second quarter earnings were truly dismal with a colossal loss of $1 billion or $1.84 per diluted share (driven by excess inventory of its Z10 phone). However, BlackBerry holds very valuable patents especially related to its encryption- and security technology. BlackBerry's patent portfolio attracts attention and might suggest that Fairfax Financial is underpaying. Reuters reported today (October 18, 2013):

    Chinese computer maker Lenovo, which has signed a non-disclosure deal to examine BlackBerry's books, faces regulatory obstacles if it bids for all of the company and will likely pursue just parts, a source familiar with the matter said on Thursday.

    BlackBerry Ltd said in August it was exploring options that could include an outright sale. And the Canadian company, which helped pioneer smartphones, has since been linked with a string of potential buyers from private equity firms to rival technology companies.

    Multiple sources close to the matter have told Reuters BlackBerry is in talks with Cisco Systems Inc, Google Inc and Germany's SAP AG among others, about selling all, or parts of itself. The potential buyers have all declined to comment.

    None of these technology companies have made a formal bid for BlackBerry yet. However, industry experts believe that, while these players might not be interested in all of BlackBerry, they are keen on at least some pieces that would mesh well with or expand their own businesses.

    Two sources said they expect some of these strategic players to be paired in bids for BlackBerry, depending on their level of interest its hardware and network assets.

    Lenovo's deal rational

    Lenovo is already doing active buy side due diligence and other companies like Cisco Systems (CSCO) and Google have expressed their interest as well. A BlackBerry acquisition by Lenovo would make sense for the Chinese company. China's Lenovo Group is the world's top PC maker even ahead of Dell (DELL). A purchase of BlackBerry would define and strengthen Lenovo's position in the lucrative Chinese mobile device market and also add to Lenovo's weak patent position. Lenovo would be able to leverage BlackBerry's technology know-how and add critical scale to its operations. A negative aspect, though not a deal-breaker, would be required regulatory approval for a Lenovo-BlackBerry deal as BlackBerry still has a fairly strong market position in the government sector providing it with vital encryption technologies. A sale to a Chinese company might face extra scrutiny from Canadian/US regulatory authorities on grounds of national security.

    Alternative buyout offers

    It is also at least a possibility that interested buyers form a consortium to purchase parts of the company. Cisco, Google and SAP could find interest in BlackBerry's security business. Microsoft's purchase of Nokia's device unit for $7.2 billion and Google's purchase of Motorola Mobility have proven that loss-making hardware businesses can be sold, too. While the messaging system/server network and patent portfolio are BlackBerry's crown jewels, the attached hardware business could simply be sold off as the above mentioned transactions have shown.

    BlackBerry's operating losses cloud the picture of the true underlying value of BlackBerry's individual segments. Clearly, declining market shares and contracting sales are not necessarily raising BlackBerry's bargaining power in a proposed transaction. The following Sum-of-Parts table suggests that Fairfax is getting a steal at $9 per share.

    {SA Article} Fairfax Deal At Risk, Could A Bidding War Propel Shares Past ?-15103192-13820851741126523-achilles-research_origin.png

    Share performance

    BlackBerry's share price reflects its losing competitive edge in its core smartphone market. Despite a strong market position in the government sector the market has lost confidence in BlackBerry and its service offering.

    {SA Article} Fairfax Deal At Risk, Could A Bidding War Propel Shares Past ?-15103192-13820804395270534-achilles-research.png

    Where is the deal premium?

    What I would expect as a shareholder in BlackBerry is that an acquirer pays a control premium for the proposed transaction. Microsoft's offer to acquire Nokia's device unit sent Nokia's shares materially higher. BlackBerry's shares have hardly moved on the buyout offer for two reasons: First, the buyout offer is significantly underpaying shareholders at $9 a share. Second, the market doubts the deal will go through and allows a discount of 9% to the proposed transaction price. The market is not too excited about BlackBerry's potential inclusion into the Fairfax Financial family.

    {SA Article} Fairfax Deal At Risk, Could A Bidding War Propel Shares Past ?-15103192-13820823309995487-achilles-research.png
    Conclusion

    Prem Watsa's buyout deal isn't tucked in just yet. Lenovo's buy side due diligence suggests that the company has a serious interest in purchasing at least parts of BlackBerry's business. Other companies like Cisco, Google or SAP are also involved in talks but aren't providing details of how advanced those discussions are. It is possible that one or more companies launch bids for at least parts of the business which could quickly escalate into a bidding war. The loss-making hardware business could eventually be sold off and is not a fundamental obstacle to attract potential buyers. The $9 per share offer substantially undervalues BlackBerry which other sector players notice. The low estimate for BlackBerry's patents ($2 billion) and cash/investments alone cover 92% of the proposed transaction price per share. There is a good chance that alternative bids for BlackBerry are coming in any moment causing the Fairfax deal to fall through. After all, if the deal with Fairfax Financial is sealed why even bother allowing other companies check the books? I would expect a substantial deal premium similar to Nokia's sale of its ailing hardware unit. Nokia shares advanced over 40% immediately after the announced sale. If BlackBerry is being bought out by another player and/or a bidding war starts over its crown jewels, BlackBerry could quickly achieve Nokia's transaction premium and be heading for $12 a share or more. Speculative Buy on competing bids.
    10-18-13 07:31 AM
  2. amazinglygraceless's Avatar
    Fairly interesting article that mostly avoids the spin and overwrought rehashing of BBRY's current straits. A rarity for Seeking Alpha.
    Thoughts?
    10-18-13 07:36 AM
  3. m1a1mg's Avatar
    The most important item from that highly biased opinion piece: Disclosure: I am long BBRY.

    It also included the continuing lie that is so overused by SA writers who are pro BBRY. It takes that innocuous sentence from the earlier press release where BBRY offered itself to Cisco, Google, and others and has converted that to interest from those companies. There is zero evidence that CISCO or Google is interested in any way, shape, or form. People who get their "news" from SA deserve what they get.
    Knightcrawler, Etios and JeepBB like this.
    10-18-13 07:46 AM
  4. amazinglygraceless's Avatar
    We read this way different I guess. I don't see it as an opinion piece but an analysis and a fair one at that. As to the issue of Cisco and Google, the absence of evidence that they are interested does not mean they are not. Not everything a multi-billion dollar corporation does or has an interest in will be an open book to the public. It does not work that way and I do not know why this thought seems to be anathema to some.

    The writers position is irrelevant to me. Knowing his financial interest did not / does not invalidate his opinion, though I am sure some will make the argument that it is the end all and be all of his view.

    Finally, please do not make the mistake of thinking I or anyone else "relies" on Seeking Alpha for ALL of our news. It is one of many sources and an informed person will always gravitate toward more information than less, even when the source of that information does not always square with our preconceived notions. I should also stress the point that this article is an analysis (my opinion) / opinion (your view) which takes it completely out of the realm of "news"
    10-18-13 08:12 AM
  5. jay_men's Avatar
    It's a win-win for Fairfax either way. They set a floor with the price they were willing to pay for the company and now suddenly there may be other interested parties which some "analysts" claimed would not materialize. It'll be interesting if the final price ends up north of $12 as the market is saying $9 was too much already. Such a scenario would lessen the overall loss of Fairfax's investment in BlackBerry. If Fairfax succeeds with their deal to go private, they'll have the time to execute what they want to do in their timeframe to make money without having to disclose / comment on everything required as a publicly listed company in the Nasdaq / TSX.

    The Lenovo situation will be fun to watch if it is indeed to be true. If they come out on top and go through the regulatory process, I think it will show how contradictory the Conservative government is capable of being and the amount of lip service they will do with their concerns over their broad definition of "national security" will border another level of annoyance. As far as I know, ThinkPad's are already being used by the majority of the big companies in the country where security is of importance to their place of business and there is no concern there. The Conservative government has not stopped Chinese firms from buying companies in the resource sector so it'll be interesting to see how they play their hand further in the telco industry unlike the recent outcome with a Russian / Egyptian entity.
    Last edited by jay_men; 10-18-13 at 08:24 AM.
    amazinglygraceless likes this.
    10-18-13 08:13 AM
  6. scienceboy's Avatar
    The most important item from that highly biased opinion piece: Disclosure: I am long BBRY.

    It also included the continuing lie that is so overused by SA writers who are pro BBRY. It takes that innocuous sentence from the earlier press release where BBRY offered itself to Cisco, Google, and others and has converted that to interest from those companies. There is zero evidence that CISCO or Google is interested in any way, shape, or form. People who get their "news" from SA deserve what they get.
    Actually, nondisclosure agreements have been signed by those companies, and others such as Leno. Where do u get your information from? Sources that are short on BlackBerry?

    Posted via CB10
    fedakd likes this.
    10-18-13 08:24 AM
  7. m1a1mg's Avatar
    The writers position is irrelevant to me. Knowing his financial interest did not / does not invalidate his opinion, though I am sure some will make the argument that it is the end all and be all of his view.

    Finally, please do not make the mistake of thinking I or anyone else "relies" on Seeking Alpha for ALL of our news. It is one of many sources and an informed person will always gravitate toward more information than less, even when the source of that information does not always square with our preconceived notions. I should also stress the point that this article is an analysis (my opinion) / opinion (your view) which takes it completely out of the realm of "news"
    How you can take anything written by a person long BlackBerry, as an analysis is beyond my comprehension. The only positive spin he left out was StatCounter data. This "article" is just a compilation of various other reports, while leaving out the negatives.

    I did not state that you rely on Seeking Alpha for all of your "news". That you rely on Seeking Alpha for any of your "news" surprises me, as I generally hold your opinion in high regard.
    10-18-13 08:30 AM
  8. m1a1mg's Avatar
    Actually, nondisclosure agreements have been signed by those companies, and others such as Leno. Where do u get your information from? Sources that are short on BlackBerry?

    Posted via CB10
    You have evidence that Cisco and Google have signed NDAs with BBRY?

    The only thing I've ever seen with regards to these companies is that they were approached by BlackBerry. Not the other way round.
    10-18-13 08:32 AM
  9. fin2007's Avatar
    There is still people believing those SA pumpers? did not they get hurt enough by those pumping articles?
    messaging service worth 3B? wow. more than delusional pumpers.

    Analysis says it is wioth 500M-1.1B, I am not sure whom I should believe, LOL
    10-18-13 08:40 AM
  10. amazinglygraceless's Avatar
    You have evidence that Cisco and Google have signed NDAs with BBRY?

    The only thing I've ever seen with regards to these companies is that they were approached by BlackBerry. Not the other way round.
    No, I haven't but, you are kind of moving the goalposts... signing an NDA is not the only manner in which either could express their interest. My point, which was simply that those of us outside the C-Suites of these companies really have no idea what is happening behind the scenes, stands.

    All of us are relying on what reporting there is, quotes from unnamed sources, analysts (some fair, some biased) and our own best guesses. None of that changes the fact that there is a great deal we are not privy to and won't be until one or more of the participants release an official statement. So NDA's and who approached aside, there is still no way for you or anyone else to say that Google and Cisco have NO interest, well, you can, but that would just be speculation just as it would be if I said they do.
    10-18-13 08:44 AM
  11. m1a1mg's Avatar
    No, I haven't but, you are kind of moving the goalposts... signing an NDA is not the only manner in which either could express their interest. My point, which was simply that those of us outside the C-Suites of these companies really have no idea what is happening behind the scenes, stands.

    All of us are relying on what reporting there is, quotes from unnamed sources, analysts (some fair, some biased) and our own best guesses. None of that changes the fact that there is a great deal we are not privy to and won't be until one or more of the participants release an official statement. So NDA's and who approached aside, there is still no way for you or anyone else to say that Google and Cisco have NO interest, well, you can, but that would just be speculation just as it would be if I said they do.
    Sorry, I guess I'm being a grumpy a** this morning.

    First, and foremost, this reply was to scienceboy who stated that there were NDAs in place for those companies. I took exception to that. Not trying to move our goalposts.

    Secondly, I agree wholeheartedly that we know very little. The only thing I've seen regarding Cisco, Google, and SAP was the press release where they had been invited (by BBRY) to show any interest. It's a long run from that to NDAs for those companies.
    10-18-13 08:54 AM
  12. cgk's Avatar
    No, I haven't but, you are kind of moving the goalposts... signing an NDA is not the only manner in which either could express their interest. My point, which was simply that those of us outside the C-Suites of these companies really have no idea what is happening behind the scenes, stands.

    All of us are relying on what reporting there is, quotes from unnamed sources, analysts (some fair, some biased) and our own best guesses. None of that changes the fact that there is a great deal we are not privy to and won't be until one or more of the participants release an official statement. So NDA's and who approached aside, there is still no way for you or anyone else to say that Google and Cisco have NO interest, well, you can, but that would just be speculation just as it would be if I said they do.
    That's true but BBRY is such a leaky bucket these days that any real interest is quickly broadcast out to the world via sources - that's the reason we know in the first place they approached these companies, that they were doing a write-down, making layoff etc. If the companies mentioned really would interested, I would have thought we'd see a leak similar to the lenovo one.

    The other fact is - while it's great at the moment that a couple of companies are kicking the tires, could collopse the interest if one walks away after looking at the books...
    10-18-13 09:05 AM
  13. amazinglygraceless's Avatar
    Sorry, I guess I'm being a grumpy a** this morning.
    No worries, I am about a quart low on coffee myself

    How you can take anything written by a person long BlackBerry, as an analysis is beyond my comprehension.
    Simple, because as I have stated I will not take his financial position as an indicator of bias. There are people / writers that can present a fair analysis of a given company independent of their financial interest.

    I know that for many that as a concept is heresy and given that Seeking Alpha lives on the list of "the hated" like The Verge, BGR, CNBC, Americans, Shorts, Longs, Apple, Rogers, carriers, my Android wielding mailman, the crazy lady that feeds the pigeons in Bushnell Park, etc... what I chose to do is read the article and evaluate the content thereof without ascribing some ulterior motive to the writer.
    Sith_Apprentice likes this.
    10-18-13 09:44 AM
  14. Sith_Apprentice's Avatar
    I do find the CISCO interest odd. CISCO is in bed with Samsung, and they are working on a handset to be released in the next few quarters. This device aims specifically at BlackBerry in government and enterprise.
    10-18-13 09:49 AM
  15. badiyee's Avatar
    I do find the CISCO interest odd. CISCO is in bed with Samsung, and they are working on a handset to be released in the next few quarters. This device aims specifically at BlackBerry in government and enterprise.
    Probably a takeover and assimilation is cheaper at this point? I'm thinking they probably just want QNX

    Sent from my A500 using CB Forums mobile app
    10-18-13 10:01 AM
  16. m1a1mg's Avatar
    Simple, because as I have stated I will not take his financial position as an indicator of bias. There are people / writers that can present a fair analysis of a given company independent of their financial interest.
    Fair enough. I suppose I am diametrically opposed. I want my analysis from those outside the influence.
    amazinglygraceless likes this.
    10-18-13 10:02 AM
  17. jay_men's Avatar
    Fair enough. I suppose I am diametrically opposed. I want my analysis from those outside the influence.
    Unfortunately it is difficult to find any objective analysis from those outside the influence with all the noise in the marketplace and self serving interests that is common place. At the end of the day, most "analysts" will do what they need to do to get heard and the media will quote whoever they need from to drive / sell their headlines. It is what it is.
    sunsetblow likes this.
    10-18-13 10:25 AM
  18. m1a1mg's Avatar
    Unfortunately it is difficult to find any objective analysis from those outside the influence with all the noise in the marketplace and self serving interests that is common place. At the end of the day, most "analysts" will do what they need to do to get heard and the media will quote whoever they need from to drive / sell their headlines. It is what it is.
    I don't disagree. However, in my humble opinion, I think a guy that is long the stock has already made up his mind. Therefore, I take them out of the mix from the start. YMMV.
    10-18-13 01:11 PM
  19. Sith_Apprentice's Avatar
    Probably a takeover and assimilation is cheaper at this point? I'm thinking they probably just want QNX

    Sent from my A500 using CB Forums mobile app
    Again seems unlikely. They have spent a considerable amount of time working with Samsung.
    10-18-13 01:12 PM

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