Cormark analyst Richard Tse says the obvious question that arises from yesterday’s news that Fairfax Financial made a (U.S) $4.7-billion offer to take BlackBerry private is if any other potential suitors will emerge in the six weeks allotted for due diligence.
Tse says that despite the fact that he thinks the move by Fairfax is designed to light a fire under other prospective bidders, the likelihood of another interested party emerging is quite low; 10-15% in his estimation.
In a research update to clients this morning, the Cormark analyst broke down the details on the arrangement, which has some wiggle room. During the period prior to November 4th, if BlackBerry enters into an agreement with another party it will be required to pay Fairfax $0.30 per share. And Tse says it his understanding that if Fairfax ultimately acquires BlackBerry the consortium would be paid a fee of $0.50 per share.
Another aspect of the deal worth noting is that Fairfax management has noted that its existing stake in BlackBerry is the extent of its participation, meaning the capital will be provided by the rest of the consortium, which has not yet been named.
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Rumours abound this week that certain Canadian pension funds are kicking the tires on BlackBerry. The Globe and Mail yesterday reported that the Ontario Teachers’ Pension Plan “has shown the most interest…”. That entity was predictably cagey, with spokeperson Deborah Allen telling Reuters today “We never discuss whether or not we plan to enter into any investment.”
Tse says the deal has positives for both parties. For BlackBerry, he says, the offer puts a floor in its value and provides “moral support” to its remaining employees. For Fairfax, the deal is a good one because the price it has offered to pay is a discount to BlackBerry’s net asset value of approximately $10.50 a share.
As a result of the offer, Tse changed his rating on BlackBerry from BUY to MARKET PERFORM and his one-year target on the stock to $9.00 from $10.50.