Faced with the very real possibility of being sold for parts, BlackBerry has made perhaps the only deal available that might give it a chance for redemption.
After being halted for the second time in two days, BlackBerry today announced that it signed a deal that will see it bought by a consortium led by Prem Watsa’s Fairfax Financial. The offer is valued at (U.S.) $4.7 billion, or $9.00 a share.
After Friday’s announcement that the company would report a near billion dollar Q2 writedown and would fire 4500 staff, shares of the Waterloo device maker had fallen to $8.26 on the Nasdaq, so the offer is a slight premium to that.
With many suitors, including perennial candidate Microsoft, seemingly out of the picture, talk of late had turned to the value of BlackBerry’s various pieces, including its patents, its subscriber base and its handset business, which some had valued at zero. Most pegged the company’s value at more than $10.00 a share, so Watsa may have squeezed out a bit of a bargain, but given the company’s recent free fall the deal seems at least within the range of fair for both parties.
What BlackBerry is getting is someone who knows and values the company, and whose reputation is beyond reproach. Watsa, who is sometime referred to as “Canada’s Warren Buffett” has been at the helm of the wildly successful Fairfax Financial for decades.
Fairfax, an insurance company with direct investments in other insurance companies and a portfolio of bonds and common stocks, has an average annual return of 17.9% over the past decade. By comparison, the S&P 500 has returned 1.4% per year over the same period. Fairfax was Canada’s most profitable corporation in 2008, and through moves that sometimes puzzled the general public, Watsa kept making money through the worst recession in a generation. Before the market collapse of 2008, Watsa used credit default swaps to bet against the US credit market. His $341 million bet returned more than $2 billion.
Watsa, who has consistently defended the company over the course of its recent decline, confirmed that he does, in fact, want to keep BlackBerry together. Prior to this offer, between Fairfax Financial and his internal money management firm, Hamblin Watsa, he already owned more than 28% of the outstanding shares of BlackBerry.
“We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees,” he said in a prepared statement today. “We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.”
Under the terms of the deal BlackBerry will give the consortium six weeks to conduct due diligence. The company can entertain competing bids, but the Fairfax group has the right to match any offer that is tabled.
BlackBerry may not be making money for public market investors for some time, if ever, but today’s deal almost certainly means it will continue to make BlackBerrys.