BlackBerry has tentatively accepted to be bought off by a consortium led by Canadian insurance company FairFax Financial for $4.7 billion. According to the tentative agreement, FairFax Financial will buy off the pioneer of mobile office email for $9 a share pending due diligence to be done until November 4. In the meantime BlackBerry will still consider other propositions from other potential buyers. However if BlackBerry decides to consider another buyer, they will have to pay as much as 50 cents a share in fees, or $262 million, to FairFax.
FairFax is the majority shareholder of BlackBerry (formerly Research In Motion) controlling 10% of stock. The offer by FairFax to buy BlackBerry will have FairFax shelve its shares and also take BlackBerry Private. Brian Colello, analyst at Morningstar, said that taking Blackberry private would allow the company to reorganize without being under the glare of Wall Street investors. Other analysts agree as BlackBerry may need to initially operate at break-even level for a while as it strategically re-position itself in the mobile market. The consortium is seeking financing from Bank of America Merrill Lynch and BMO Capital Markets to complete the deal.
The announcement has come just when BlackBerry had announced that it will layoff 4,500 workers. The layoff is occasioned by the expected revenue decline to $900 million against initial projection of $3 billion. BlackBerry shares have also been on the descend since 12 months ago down to $6.22 a share from $18.32 a share. Just before the deal’s announcement BlackBerry’s shares were trading at $8.24 a share then after the announcement the share price jumped by about 1.1% to settle at $9 a share.
The deal by FairFax is somehow being treated by BlackBerry as a plan B as they are still sourcing for other buyers that could offer better deals. “This is pretty much Plan B. They’ve clearly not hit the targets,” said Donald Yacktman, president and founder of Yacktman Asset Management which holds a stake of less than 1 percent in BlackBerry according to Thomson Reuters data. However analysts do think BlackBerry will not receive any counteroffers given recent market performance by BlackBerry.
The sale will see BlackBerry follow the footsteps of Nokia that was once the king of mobile handsets but also failed to respond in a timely manner to the changing consumer preference for touch smartphones. Nokia earlier this month announced that they had reached an agreement with Microsoft to buy their handset and intellectual property divisions for $7 billion (read: Part of Nokia to be sold for $7 billion to Microsoft).
It now seems that BlackBerry’s decision to introduce its most loved BlackBerry Messenger (BBM) into Android and iOS ecosystems means it does not want to disappoint its loyal customers if in any case the buy off sends them into a totally different business.