BUSINESS: BlackBerry bits worth $5.5B,
Analysts say potential buyers more interested in software and patents
BlackBerry Ltd.’s withering smartphone business means potential buyers will pick over its more alluring assets, including software and patents, which together may be worth about $5 billion, roughly in line with the company’s current market value.
The phone unit, BlackBerry’s biggest source of revenue, is essentially worthless because most buyers would shut it down in favour of their own technology, at a cost of as much as $800 million, said analysts at Raymond James Ltd. and BMO Capital Markets.
Its patents, software and a secure network are each worth more than $1 billion, the analysts said, and the company has about $2.8 billion in cash.
The Waterloo, Ont.-based company appointed board members last week to analyze a sale or new partnerships to try to turn the company around.
The value of the hardware unit may plummet further as customers shy from a device whose future is up in the air, leading potential buyers of the company to gravitate to BlackBerry’s other assets, Brian Huen, managing partner at Red Sky Capital Management, said by phone on Monday.
“You’re effectively killing that business by saying ‘I’m up for sale,’” said Huen, whose Toronto-based firm manages about $220 million in assets, including BlackBerry shares. “Nobody is interested in buying the entire entity.”
Lisette Kwong, a spokeswoman for BlackBerry, declined to comment yesterday about a potential breakup and sale of the company’s parts.
Meanwhile, Industry Minister James Moore said that, while the federal government wishes BlackBerry well in its turnaround efforts, it’s up to the company to reignite interest in its products.
Prime Minister Stephen Harper’s government, while declining to comment on any specific takeover possibilities, had previously signalled it would prefer the company remain Canadian.
The government automatically reviews all foreign takeovers of companies with assets valued at more than $344 million to determine if they’re in the national interest.
BlackBerry hired JPMorgan Chase & Co and RBC Capital Markets 17 months ago to explore its strategic options as sales of the company’s once-iconic phones tumbled amid competition from Apple Inc. and Samsung Electronics Co.
Those bankers contacted possible bidders late last year and found little interest in buying the whole company, said two people familiar with those discussions.
Speculation that the company might be taken private to be restructured or broken up out of the public spotlight accelerated after Aug. 12, when BlackBerry’s largest shareholder, Prem Watsa, said he would step down from the board.
“We struggle to assign any value to the hardware business, given the belief the most logical acquirer of BlackBerry would likely attempt to transition BlackBerry’s subscriber base to its own competing smartphone products or ecosystem,” Michael Walkley, an analyst at Canaccord Genuity Inc. in Minneapolis, said in an Aug. 12 note.
In addition to its cash, BlackBerry has smartphone patents, an operating system that powers car-information systems and even nuclear power plants, and a network of secure servers that caters to millions of government and business users.
The company’s cash reserves will be worth about $2.6 billion at the end of this fiscal year. Its patents and other intellectual property might fetch $1 billion; the network would be worth $1.2 billion; and the software about $1.5 billion, said Tim Long, an analyst at BMO Capital Markets in New York, in an Aug. 13 note to clients. Subtracting the $800-million estimated cost of shutting down the handset businesses, that would give BlackBerry a sum-of-the-parts value of about $5.5 billion, or $10.50 a share.