[CrackedBarry]

The buyout announcement kinda makes it sound like Fairfax Capital is spending over four billion dollars of its own money to acquire Blackberry.

But in reality, most of it is being payed by... Blackberry.

Those 3 billion dollars cash? Yup, that's what they're using them for. In reality Fairfax will only have to come up with one and a half billion dollars. (Though its possible Blackberry will take on debt to pay some of that as well)

That's how private buyouts work most of the time, and I've found that most people are surprised when they find out it works this way.

What about you guys? Does the fact that Blackberrys 3 billion dollar cash reserves will be spend to pay for the buyout make you feel any differently about the deal?

[kevinnugent]

And their ongoing viability, without cash in the bank....

[Raestloz]

I think it's less BlackBerry giving Fairfax cash and more Fairfax obtaining the $3 billion cash after acquiring BlackBerry so it balances out

Z10 STL100-1/10.1.0.4633

[cgk]

I think it's less BlackBerry giving Fairfax cash and more Fairfax obtaining the $3 billion cash after acquiring BlackBerry so it balances out

Z10 STL100-1/10.1.0.4633

Except the cash will be gone, that's the point - how do you think they plan to pay the financing otherwise? The profit then comes from asset-stripping the valuable bits of the company.

[Raestloz]

No, I'm saying that it's like this:

BlackBerry has $3 billion

Fairfax pays $4.7 billion

Once Fairfax owns BlackBerry, they also own the $3 billion BlackBerry has

So, when you count everything, Fairfax only loses $1.7

Z10 STL100-1/10.1.0.4633

[CrackedBarry]

That's not how private buyouts work.

The investors usually only put up a small amount of money, the rest comes from the company they're buying. If there isn't money there, the company takes up bonds or loans to pay for the buyout. (Yes, I do realize this sounds insane, but that's how they work!)

In this case, BBRY has plenty of money, so BBRY won't need to loan money to finance the buyout. It's the 3 billion dollar cash paying for it.

The Wall Street Journal posted an article about it today, in case you think I'm making this up. I wouldn't blame you, it sounds crazy and counterintuitive.

HEARD ON THE STREET: BlackBerry Isn't Ripe for the Picking - WSJ.com

[jpvj]

That's not how private buyouts work.

The investors usually only put up a small amount of money, the rest comes from the company they're buying. If there isn't money there, the company takes up bonds or loans to pay for the buyout. (Yes, I do realize this sounds insane, but that's how they work!)

In this case, BBRY has plenty of money, so BBRY won't need to loan money to finance the buyout. It's the 3 billion dollar cash paying for it.

The Wall Street Journal posted an article about it today, in case you think I'm making this up. I wouldn't blame you, it sounds crazy and counterintuitive.

HEARD ON THE STREET: BlackBerry Isn't Ripe for the Picking - WSJ.com

100% agree.

The business case is the following: The investor aqcuires a company worth some amount - lets just say 100 millon dollars. They drain the company for funds, take loans etc. and only has to put up maybe 10 million dollars. If executed well they are able to sell for maybe 200 million dollars after 5 years, thereby having a return of 110 millions of their initial 10 millions minus interests.

Fairfax is in this game for the money (or trying to salvage whatsever is possible due to their previous investments). The only "long term trust" they have in BlackBerry is their trust/hope to make money of the company.

The only possible good part of this is the company *has* to be turned profitable to gain value. Unfortunately it is usually done by laying off lots of emplyee and ultimately also loosing "brainpower".

[Raestloz]

That's not how private buyouts work.

The investors usually only put up a small amount of money, the rest comes from the company they're buying. If there isn't money there, the company takes up bonds or loans to pay for the buyout. (Yes, I do realize this sounds insane, but that's how they work!)

In this case, BBRY has plenty of money, so BBRY won't need to loan money to finance the buyout. It's the 3 billion dollar cash paying for it.

The Wall Street Journal posted an article about it today, in case you think I'm making this up. I wouldn't blame you, it sounds crazy and counterintuitive.

HEARD ON THE STREET: BlackBerry Isn't Ripe for the Picking - WSJ.com

Wtf? If that's how it is, why didn't Kevin go and buyout BlackBerry? That sounds like a no brainer looking at how things go. I mean, you know, maybe $1 billion is not in Kevin's pocket, but if BlackBerry the company is willing to get loans to fund the purchase, almost everyone can go for it!

That's, like, a very wasted opportunity!

Btw, I can't see the rest of the article, I don't subscribe on WSJ

Z10 STL100-1/10.1.0.4633

[moosbb]

The bill will be paid by sharholder! They are the losers ther. That is in the market land unfortunatly!
Fairfax will do the big "buy for peanuts", and is the big winner

[JasW]

That's not how private buyouts work.

The investors usually only put up a small amount of money, the rest comes from the company they're buying. If there isn't money there, the company takes up bonds or loans to pay for the buyout. (Yes, I do realize this sounds insane, but that's how they work!)

In this case, BBRY has plenty of money, so BBRY won't need to loan money to finance the buyout. It's the 3 billion dollar cash paying for it.

The Wall Street Journal posted an article about it today, in case you think I'm making this up. I wouldn't blame you, it sounds crazy and counterintuitive.

HEARD ON THE STREET: BlackBerry Isn't Ripe for the Picking - WSJ.com

Sorry, that's not totally correct. The $4.7 billion purchase price will be met in part by the $2.6 billion in cash BBRY has. However, that pile of cash will probably have dwindled to less than $2 billion by the end of the current quarter next Monday, given the rate at which BBRY bled money during the last quarter. The rest of the money used to make the purchase will come from financing. That financed amount will probably have to be close to $3 billion.

So right away, you have BBRY saddled with an almost $3 billion debt. The patents won't cover it. Although they have been estimated to be worth about $2 billion, it's not clear that they are worth that much in the current market. Further, not all of the patents are owned outright by BBRY -- some are co-owned with Apple and Microsoft.

There's not much else of value. Certainly not BB10 and the handset division. That's completely worthless. So any bank financing the deal would be taking on quite a risk.

[BBThemes]

Sorry, that's not totally correct. The $4.7 billion purchase price will be met in part by the $2.6 billion in cash BBRY has. However, that pile of cash will probably have dwindled to less than $2 billion by the end of the current quarter next Monday, given the rate at which BBRY bled money during the last quarter. The rest of the money used to make the purchase will come from financing. That financed amount will probably have to be close to $3 billion.

They are burning cash you are correct, but that 2.6bn figure is from last weeks warning PR, which is saying how it will be this Friday when they announce it. so right now they have 2.6bn. however they will most likely burn some of that heading into November when they get bought.

The biggest thing I don't understand with the buyout is the go-shop clause. Usually it makes sense, but as Fairfax hold more than 10% that means they could block any other offer anyways, so they can basically ensure their deal is the only deal. Also they are probably buying up even more shares right now in the company, as while the stock is below $9 per share then its all savings off the purchase costs. lets say they purchase 100m shares between now and November (daily trade avg is 30m so they could easily do it without disturbing the market) at say $8.50, that's $50m saved right there. purchase more or at a lower price and they could save an awful lot more, so I don't think come November the just over 10% held by Fairfax will be that small, id imagine 17-20% held by them at that point.

[sjmartin007]

There is some truth to all statements and ideas mentioned. In thus chase they are several or a group of companies along with Fairfax that are purchasing blackberry. The break down of how and what a company does with the purchase company asset depend on the deal agreement. The can buy the share holder out of a period of time so a cash drain like someone mentioned does deplete the companies operational budget. Or the new owners can ink a deal with in November and not fully take control over the company until the next fiscal year. An as a private company we wouldn't know what moves were made in that time. Assets can be sold, partnerships can be formed, with the blessing of the new owners of courae. So only time will tell what strategy the new owners will use. I honestly doubt Fairfax and it's partners will buy a debt free company just to turn around and aquire debt. This hoq Mr watsa became a billionaire, not from acquiring debt but investing money and a business that brings value to the companies.

Posted from the most powerful smartphone,z10

[JasW]

They are burning cash you are correct, but that 2.6bn figure is from last weeks warning PR, which is saying how it will be this Friday when they announce it. so right now they have 2.6bn. however they will most likely burn some of that heading into November when they get bought.

That $2.6 billion is how it was at the end of the 2nd quarter on June 30, as this line from last week's announcement shows: "At the end of the second quarter, total cash, cash equivalents and investments is estimated to be approximately $2.6 billion."

So you have July, August, and September of p�ssing away cash yet to be factored in. That's what the due diligence will be about in part -- looking over the books to see just how much cash BBRY currently does have.

[BBThemes]

That $2.6 billion is how it was at the end of the 2nd quarter on June 30, as this line from last week's announcement shows: "At the end of the second quarter, total cash, cash equivalents and investments is estimated to be approximately $2.6 billion."

So you have July, August, and September of p�ssing away cash yet to be factored in. That's what the due diligence will be about in part -- looking over the books to see just how much cash BBRY currently does have.

NO, the BlackBerry Quarterly results are financial calendar based (hence 2014) and not starting on Jan 1st.
Q1 spans March April May
Q2 spans June July August
Q3 spans September October November
Q4 spans December January February

So the 2.6bn figure is actually as of the beginning of this month. ultimately you are right in the sense that there are 2 months between that figure and the buyout, so that would be part of the due diligence.

[JasW]

NO, the BlackBerry Quarterly results are financial calendar based (hence 2014) and not starting on Jan 1st.
Q1 spans March April May
Q2 spans June July August
Q3 spans September October November
Q4 spans December January February

So the 2.6bn figure is actually as of the beginning of this month. ultimately you are right in the sense that there are 2 months between that figure and the buyout, so that would be part of the due diligence.

Yes, sorry, you're absolutely right, their quarter ended on August 31. So it's anybody's guess how much of the cash will have been lost in the two months from then until November 4.