Current shareholder Fairfax Financial ups the ante to take BlackBerry private for US$4.7bil
While Fairfax is bullish, analysts remain cautious over its structural business challenges
THE acquisition of BlackBerry Ltd may have temporarily lifted the gloom from the once-loved phone maker, but analysts and industry watchers still do not believe that the move would resolve the more deep-seated structural business problems faced by the company.
In a move somewhat expected by the industry, last week news broke that BlackBerry received a bid of US$4.7 billion by its existing and largest shareholder, Toronto-based Fairfax Financial Holdings Ltd, to take the Waterloo, Ontario-based device maker off the stock market and go private.
BlackBerry reported a quarterly loss of nearly US$1 billion on Sept 27 and did particularly poorly in Latin America, a market it had earlier claimed it would do well in, given its new Z10 and Q10 products.
Reuters reported that BlackBerry had warned on Sept 20 that poor results were on the horizon and said its net loss for the second quarter, ended on Aug 31, was US$965 million, or US$1.84 a share.
Revenue fell 45% from a year earlier to US$1.6 billion and BlackBerry's cash pile – made up of cash and equivalents, short and long-term investments – fell by over a whopping US$500 million to US$2.57 billion, noted the wire agency. In tandem with the announcement of its poor financial performance, BlackBerry said it would cut 4,500 jobs.
Several analysts quoted in various media reports were unconvinced that the buy-back of the company by Fairfax would solve BlackBerry’s fundamental challenges.
These challenges include declining market share, the inability to inspire consumers with its device designs, the larger appeal of Apple’s iPhone and Google-based smartphones, and the resulting rising price wars between device makers.
“It potentially buys the company time,” James Cordwell, an analyst with Atlantic Equities, was quoted as saying on Reuters. “What it doesn't solve is, what's the long-term strategy for BlackBerry.”
Kevin Stadtler of Stadtler Capital questioned the deal, asking, “What is the significant burden being private, versus being a public company?” he said on Forbes.
“It’s a fire sale … . Ultimately the board of directors and the executives are responsible [for maximising] shareholder value, and how have they maximised value by this transaction?”
Fundamentals not addressed
Jan Dawson of Ovum was more critical in his analysis of the situation, noting that taking BlackBerry private doesn’t solve the fundamental problems at the company.
The chief telecom analyst at the London-based research firm said the company’s device sales are cratering, and its announcement last week that it no longer intends to pursue the consumer market is essentially the death knell for this business.
“BlackBerry’s supply chain relies on scale for profitability, and it will never again be able to achieve the scale necessary to make money on devices,” he said in a statement.
Dawson (pic) predicted that it’s likely that BlackBerry will be out of the device business entirely by the middle of next year.
“If you strip out BlackBerry’s use of its QNX operating system for BlackBerry devices, you’re left with a business that’s worth less than US$100 million,” he pointed out. “About the only part of BlackBerry that looks to be worth a significant amount at this point is its patent portfolio, and that certainly wouldn’t justify the purchase price on its own.”
Dawson also said normally, companies are taken private in order to give a long-term strategy time to payoff without the hassles of short-term investor scrutiny.
But BlackBerry’s key problem for the last couple of years has been the lack of such a long-term strategy, he added. “It simply hasn’t articulated a way to rebuild its business as its device sales drop precipitously.
“Unless Fairfax plans to radically change or accelerate BlackBerry’s strategy, it’s unlikely to be able to turn the company around. And that means we’re likely seeing the beginning of the end for one of the most iconic brands in mobile technology.”
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