Argues Prem Watsa merely seeks to salvage his own 10% stakeShares in Canadian smartphone maker BlackBerry closed more than 6 per cent lower on Nasdaq last night (25th September 2013), amid concerns that a takeover plan by former director Prem Watsa is not viable. Adding to investor fears about the company is the fact that tomorrow it announces its fiscal second-quarter results, having already warned it will report a near $1 billion loss and is meanwhile planning to abandon the consumer market. The factors combined to drive BlackBerry’s share price to just short of a year low, with it closing at a little over $8. Earlier Pierre Ferragu, an industry analyst at Bernstein Research, had cast doubts over whether the $4.7 billion buyout bid tabled by a consortium led by Prem Watsa’s Fairfax Financial would be ever completed.
He implied that Watsa, who is generally hailed as the Warrren Buffet of the North, had jumped the gun by announcing a deal without revealing who the other investors might be.
Ferragu warned his own investor clients, “Of the total $4.7 billion required in the transaction, Fairfax is not committing any more than it already had when it increased its equity stake last January to about $480 million total.”
“The firm plans to finance the remainder through new equity injections ($1 billion) and bank loans ($3 billion), but this appears, to us, unrealistic.”
He also said that as Fairfax was not offering to increase its own equity exposure, he doubted that enough other investors would join a bid, “that sounds like a last-chance rescue attempt for Fairfax’s stake.”
He also questioned if banks or other financial sponsors would accept such a deal when “the only sizeable collateral BlackBerry can bring against debt is its patent portfolio, which we value between $800 million and $1.5 billion.”
He added: “In our view, the only way the deal can go through is with an industry participant with an interest in BlackBerry Messenger service who will want to use offshore money to support the deal in a favourable tax framework.”
This scenario remains only remotely possible, as the best interests of such a participant would be to wait and see if Fairfax’s tentative deal falls through.”
Even so, BlackBerry’s continued share price slide is likely to make it even more of an enticing takeover target, with companies such as China’s Lenovo, Microsoft and IBM, all previously suggested as possible suitors.
* Footnote: A further blow has been delivered to BlackBerry with news that US carrier T-Mobile will no longer stock its devices at its stores.
In a statement T-Mobile, America’s fourth largest phone operator, said it will still ship BlackBerries to customers who want them, mainly business users, but otherwise it was no longer “efficient” to have the phones on its shelves.