BlackBerry going cheap to Fairfax
BLACKBERRY, once valued at more than $80bn, may be stuck with the cheapest valuation yet for a North American technology or telecommunications takeover.
The smartphone maker said yesterday that it had reached a tentative agreement for a $4.7bn buyout by a group led by Fairfax Financial Holdings — its biggest shareholder. Including net cash, the proposal values the Waterloo, Ontario-based company at an 80% discount to its book value and just 0.17 times its sales, the cheapest revenue multiple on record among similar-sized North American telecommunications or technology acquisitions.
While the company has six weeks to seek other bids, Pacific Crest Securities said investors should be happy to get the $9 a share that Fairfax is offering.
BLACKBERRY, once valued at $83bn, may be stuck with the cheapest valuation for a North American technology or telecommunications takeover.
The smartphone maker said yesterday it reached a tentative agreement for a $4.7bn buyout by a group led by Fairfax Financial Holdings, its biggest shareholder. Including net cash, the proposal values the Waterloo, Ontariobased company at an 80% discount to its book value and just 0.17 times its sales, the cheapest revenue multiple on record among similar-sized North American telecoms or technology acquisitions, data show.
While the company has six weeks to seek other bids, Pacific Crest Securities said investors should be happy to get the $9 per share that Fairfax is offering. CEO Thorsten Heins, who took over in January last year, did not publicly disclose the company was for sale until last month after almost a year of canvassing potential buyers.
Now, BlackBerry has posted a string of quarterly sales declines and lost almost $79bn in market value as it fell behind Apple and Google. Last week, BlackBerry said it will cut a third of its workforce and take a write-down of as much as $960m. “It is being valued like a broken company,” Anil Doradla, an analyst at William Blair, said. “They had a chance to potentially execute on a mergers and acquisitions deal when these guys were doing better. So by the time Thorsten Heins came on board, I think it was too little, too late.”
Including the $2.8bn of cash and equivalents BlackBerry had in the most recent quarter, the proposal values the company at about $1.9bn. The group led by Toronto- based Fairfax is still seeking financing for the offer, which is subject to due diligence and further negotiation.
Fairfax owns about 10% of BlackBerry’s common stock. BlackBerry did not name the other members of the takeover consortium. Fairfax CEO Prem Watsa said in an interview that the consortium did not include Mike Lazaridis, inventor of the BlackBerry and former co-CEO of the company, who has a 5.7% stake.
Lisette Kwong, a spokeswoman for BlackBerry, declined to comment.
“Our offer represents compelling value, particularly by comparison to recent transactions like Microsoft and Nokia,” Fairfax president Paul Rivett said in response to questions.
Microsoft, the world’s largest software company, agreed this month to buy Nokia Oyj’s handset business for $7.2bn.
When BlackBerry shares were halted yesterday before news of the deal, the stock’s 20-day average price was $10.31, higher than Fairfax’s $9-a-share cash bid. The offer is a 3.2% premium to the closing price on September 20, when the stock plunged after BlackBerry said it was cutting 4,500 jobs and would record an inventory write-down, mostly for the new Z10 touch-screen devices. The transaction would value BlackBerry at an 83% discount to the $11.3bn of revenue it generated in the past 12 months, according to data.
That is a lower sales multiple than any other technology or telecoms takeover struck in North America for more than $1bn, according to the data.
For shareholders, a deal still may be wishful thinking because there is not yet a firm offer on the table, MKM Partners’s Michael Genovese said. There is a chance that Fairfax will reduce its offer after scrutinising BlackBerry’s books, and other bidders are unlikely to step in, the analyst said. He values BlackBerry at $7 per share, excluding its cash, which the company is projected to burn through in the coming quarters.
“If you own the stock, your upside is capped at $9,” Mr Genovese said. “This is not yet a real deal. Hopefully, for people who are long on BlackBerry, it will result in one, but that’s very far from certain.”
BlackBerry’s dimming prospects led the company to form a special board committee last month to evaluate all possible options, including joint ventures, partnerships or an outright sale.
That announcement followed almost a year of bankers from JPMorgan Chase and RBC Capital Markets quietly contacting possible bidders.
The talks are still private. The advisers found little interest in buying the whole company, the people said at the time.
It is unlikely that other suitors will emerge with higher offers for BlackBerry, according to Mr Doradla of William Blair.
“I would be surprised if someone would come in and outbid Fairfax,” the analyst said. “If someone were to buy them out, by now they would have made that decision. I don’t know why they’d go after the asset today rather than one year or six months ago. Nothing has really changed.”
That means $9 per share may be the best BlackBerry shareholders are going to get, Pacific Crest analyst James Faucette said.
“I actually think this is a pretty attractive offer for shareholders,” he said. “Honestly, if they were to let it go a few quarters, it would be meaningfully worse.”
While there is value in BlackBerry’s intellectual property and enterprise platform, it is difficult to envision a competitor or another technology company stepping in with a rival bid for the whole company, Oppenheimer Holdings’s Ittai Kidron said in a report yesterday after the Fairfax offer was announced.
“That said, it is possible a company could come out of the woodwork or potentially another financial entity-consortium would find value in pursuing a deal,” the New York-based analyst wrote.
The Wall Street Journal reported other parties were still considering making a bid for BlackBerry. It was unclear how the Fairfax news would affect the deliberations, the paper said.
BlackBerry’s sum-of-the-parts valuation could be higher than $9 per share and it is possible it could fetch more from a consortium that included strategic buyers interested in carving up its assets, said Sachin Shah, a special situations and merger arbitrage strategist at New York-based Albert Fried. In that scenario, there would need to be some sort of Canadian participation to convince regulators to approve a deal, as well as a group of buyers that can agree on how to divide the divisions, he said.
“It’s not clear to me that they can come together,” Mr Shah said.