Struggling smartphone maker BlackBerry has agreed in principal to be acquired by a consortium led by its biggest shareholder, Fairfax Financial, a Canadian insurance company, for $9 per share, in a deal that would total $4.7 billion.
The announcement came the same day that Apple, to whom BlackBerry was losing out competing for market share, reported selling a record 9 million of its new 5S and 5C model phones on the first weekend they were on sale -- sending Apple stock up 5 percent.
By comparison, shares of BlackBerry were halted prior to the Fairfax announcement, and when trading resumed, the stock rose just 1.1 percent to $8.82 in afternoon deals.
Last week, BlackBerry said it was laying off 40 percent of its work force and expected to post a second-quarter loss of almost $1 billion. It had been looking at "strategic alternatives" for several weeks, including selling itself, or going private.
"This is a company that needs to go private if they have any chance," Colin Gillis, an analyst at BGC Partners, told Reuters. "They'd be able to restructure outside of the public eye, take a long term view, and run the company at break even."
Fairfax Financial, sometimes called the Berkshire Hathaway of Canada, is a holding company whose primary business is in insurance. It owns 10 percent of BlackBerry's shares and is led by Prem Watsa, a chemical engineer by training who has run the firm since the mid-1980s.
"We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world," Watsa said in a statement.
Shares in BlackBerry, based in Waterloo, Ontario, had plunged since Friday, when the company warned of a sharp drop in revenue and massive job cuts. The group has until Nov. 4 to conduct due diligence.
"If I was a Blackberry shareholder I would jump at it," said James Faucette, an analyst with Pacific Crest. "They're actually entering into a period of relative stability. It's going to be hard to improve things going forward. They're going to be hard-pressed to find a more willing buyer.
"BlackBerry itself is worth less than he's offering," said Faucette.
Brian Colello of Morningstar said based on the company's disastrous earnings warning last Friday, "I think a deal had to happen and the sooner the better. This is probably the only out for investors and the most likely outcome.
"The benefit to this sort of takeover is the ability for BlackBerry and the consortium to reinvent the company without public scrutiny. So we won't see any of these warnings or earnings releases that do nothing but disappoint investors. The company can go ahead with its strategy, as it pleases, that's a positive."
BlackBerry said in a news release that it has signed a "letter of intent agreement" under which the company's shareholders would receive $9 US cash for each BlackBerry share they hold and the consortium would acquire, for cash, all of the outstanding shares of BlackBerry not already held by Fairfax.
The consortium would take the company private.
Fairfax would contribute the shares it currently holds into the transaction, which is valued at approximately $4.7 billion and still subject to regulatory approval, the release said.
The consortium, which is reportedly seeking financing from Bank of America Merrill Lynch and BMO Capital Markets, has six weeks to conduct due diligence, during which time BlackBerry can seek better offers. The due diligence is expected to be completed by Nov. 4, BlackBerry said.
"Importantly, the go-shop process provides an opportunity to determine if there are alternatives superior to the present proposal from the Fairfax consortium," said Barbara Stymiest, chair of BlackBerry's board of directors, in the press release.
Trading in BlackBerry shares was also halted for a brief period on Friday after the company announced it would be laying of 4,500 workers and reported disappointing financial results.
The once mighty mobile giant has been undergoing restructuring ever since its new Z10 smartphones released earlier this year did not sell as well as the company had hoped they would. BlackBerry said on Friday that it expects to have a non-cash loss in the second quarter of this fiscal year of $930 million to $960 million, largely due to an inventory of unsold devices. It is due to report its quarterly financial results on Friday.
The stock market responded positively to the news of a possible sale, and the company's stock was up around 1.7 per cent and trading at $8.87 US on the Nasdaq.
See more at CBC and NBC news online
http://www.cbc.ca/news/business/blackberry-to-be-sold-to-consortium-led-by-fairfax-financial-holdings-1.1864922http://www.nbcnews.com/business/struggling-blackberry-agrees-be-sold-4-7-billion-4B11234242
March 03, 2013, 01:51:44 AM