BlackBerry seeks breathing space with shareholder buyout

Nick Dillon, Senior Analyst, Devices & Platforms

Troubled handset maker BlackBerry has entered into a provisional agreement to be purchased by a consortium led by Fairfax Financial Holdings, the company’s largest shareholder. If completed, this move would see BlackBerry return to private ownership after 16 years on the NASDAQ stock market.

In theory such a move should give the vendor more breathing space in which to assess its options beyond the gaze and interference of the stock market, although any future plans will have to be executed without the access to financing that public ownership provides.

Deal would see BlackBerry return to private ownership

Following the disappointing launch of devices based on its BlackBerry 10 platform, the company took the unusual move in August to announce that it was actively looking to be acquired. With a profit warning last week anticipating a loss of $1bn and an announcement of 4,500 layoffs, it was clear that something dramatic needed to happen.

The bid to take the company private came from a consortium headed by Fairfax Financial Holdings, which offered $9 per share for a total of $4.7bn. Fairfax is currently the largest investor in BlackBerry and owns about a 10% stake. The two companies have entered a “diligence period” which ends on November 4, and BlackBerry is able to discuss proposals from other potential suitors during this time. Barring any competing offers, the Fairfax transaction should be formalized soon thereafter.

The deal follows closely behind the acquisition of another past-master of the handset industry, that of Nokia by Microsoft, although at least in theory the Fairfax offer would enable BlackBerry to continue trading as an independent company rather than being subsumed into a larger one.

Fairfax deal will remove BlackBerry from market scrutiny, but at a cost

The main benefit for BlackBerry going private is that it would no longer be under the constant scrutiny of the financial markets. The markets generally focus on short-term performance over long-term strategy, making it difficult for companies such as BlackBerry to make the longer-term decisions required to change direction in the increasingly complex technology market.

In fact, it was arguably this short-term thinking that delayed the company’s move to the BlackBerry 10 (BB10) software platform, a decision that cost the company any hope of maintaining its once strong position in the handset market.

With this extra breathing space, BlackBerry will now be able to review its options with fewer distractions and focus on how best to position itself moving forward. However, there are downsides to the deal, most notably that the company will no longer have access to the capital provided by the public markets.

While a private BlackBerry will no longer be subject to scrutiny by public shareholders, its new investors Fairfax et al will no doubt be keeping a close eye on proceedings, keen to ensure a return on their investment.

BB10 could be first victim as BlackBerry reviews its options

Looking forward, BlackBerry needs to make some tough decisions about which parts of its business to keep on and which markets to target. Its primary assets are its device management and security solutions, its BB10 software platform, and its hardware business.

The first big question for the company is what to do with BB10. In the technology market, software platforms are a key strategic requirement for any company that wants to wield influence in this space. However, as BlackBerry has discovered to its expense, a vast investment is required to build and maintain a successful software platform.

It seems self-evident that BlackBerry lacks the resources required to make BB10 a success, even more so should the company go private, so we would expect it to jettison the platform in due course.

Assuming the company wishes to remain in the handset business, then it has two options for software platforms: Android or Windows Phone. Both alternatives provide interesting options for BlackBerry; if it plans to retrench into the enterprise market, then Windows Phone’s integration with Microsoft’s applications could be tempting. At the same time, Android devices secured and managed by BlackBerry could be appealing to the enterprise too.

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