September 23, 2013

Fairfax reaches tentative deal to buy BlackBerry

The Associated Press

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In this Wednesday, Jan. 30, 2013, file photo, a man uses his Blackberry as people wait for the Blackberry BB10 launch in Toronto. Fairfax Financial Holdings has offered to buy BlackBerry in a deal that values the Canadian smartphone company at about US$4.7 billion, on Monday, Sept. 23, 2013. (AP Photo/The Canadian Press, Nathan Denette, File)

BlackBerry said the general terms of the deal have been approved by its board and a special committee set up to review options. The company said it will negotiate and execute a definitive transaction agreement with Fairfax by Nov. 4.

During that time, BlackBerry is entitled to shop around for other buyers, but if BlackBerry backs out of the deal, it would owe Fairfax about $157 million.

"The special committee is seeking the best available outcome for the company's constituents, including for shareholders," BlackBerry chairwoman Barbara Stymiest said in a statement.

Fairfax said it is seeking financing from Bank of America Merrill Lynch and BMO Capital Markets. The release didn't identify what other investors are involved.

Walkley believes the preliminary nature of the deal suggests his partners likely want to do due diligence with an option to back out. The announcement made no mention of any penalty should Fairfax back out.

"The deal is hardly definitive at this stage, said Eric Kirzner, a professor of finance at the University of Toronto. "There are so many questions about it. It looks clever and it looks like it may set off a flurry of activity, maybe some other white knights are going to come along," Kirzner said. "Maybe that's the intent of this, or maybe the intent is for Mr. Watsa to acquire the company but I just don't know."

BGC analyst Colin Gillis called it a "trial balloon."

"It's worth the paper it's written on," Gillis said. "It forces the hand for anyone else that might be interested."

Gillis said taking BlackBerry private is the right move and that it's possible that BlackBerry could survive in a much smaller form. He noted that the $9-per-share offer is lower than the $12.32 average price that the stock traded over the past six months.

Going private removes the burden of pleasing shareholders with short-term results, just as Michael Dell hopes to do with Dell Inc. after winning a bid to take the troubled computer maker private, said Anthony Michael Sabino, a professor at St. John's University's business school. He said Fairfax is known for patience in its investments, which would give BlackBerry time to regroup.

"In all honesty, its fate is still uncertain, but at least now it has a fighting chance," Sabino said.

This year's launch of BlackBerry 10 and fancier devices that use it was supposed to rejuvenate the brand and lure customers. But the much-delayed phones have failed to turn the company around. At their peak in the fall of 2009, BlackBerry's smartphones enjoyed global market share of more than 20 percent, Walkley said. That is now just 1.5 percent.

The decline of BlackBerry, formerly known as Research In Motion Ltd., is evoking memories of Nortel, another Canadian tech giant, which ended up declaring bankruptcy in 2009.

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