Blackberry’s roller coaster week (BBRY)

Source: livemint.com

Source: livemint.com

It’s been a wild week (or even couple of days) for Canadian smart phone maker Blackberry (BBRY).  In the timeline of events:

  • Friday – company warns  of huge quarterly loss coming (close to $1B as a result of inventory write downs of new phones); 4500 employees being laid off (~40% of workforce); number of phone models to be reduced from 6 to 4; focus away from consumers and back to commercial
  • Monday – Fairfax Financial, a Canadian holding company, who already owns 10% of BBRY offers to take the company private for $4.7B or $9/share (about a 10% premium over Friday’s low and much of Monday’s trading)
  • Tuesday – News starts to percolate on the deal potentially falling through – from Fairfax’s due diligence process, trying to get a consortium of other parties to fund $1B of the purchase, etc.
Source: Google Finance

Source: Google Finance

At this point in time, it’s hard for shareholders to have any positive vibe for what’s going on.  The company’s about to release a massive loss in the upcoming quarter, the shining white knight has appeared to save the day only to say they need time to make sure, and he’s looking for a knight in the adjoining kingdom to help to share the risk.

The good news is Blackberry has $5/share in cash and no debt which at least sets a bottom for this soap opera.  It’s remaining assets consist of:

  • hardware – which is at best is on par with the competition
  • subscribers/services – which may improve if BBRY services start to move across platforms.  This has already started with BBM being made available across iOS and Android; although as been the case with the company, resulted in a failure to launch
  • patents – I’m sure there are some around security, messaging, etc.

There probably isn’t going to be a buyer for hardware – Samsung was in rumours when Blackberry first put it up for sale, but they already produce some of the best phones on the market.  Microsoft needs more devices to put its operating system on, but they recently bought most of Nokia for $7.2B.  Buying yet another handset manufacturer (with also declining market share) probably won’t do them any good (although as I pointed out awhile ago, should have been done a long time ago).  At this point, most analysts feel the handset business is pretty much $0.

Patents may be an interesting play but as we all found out when Google bought Motorola for $12.5B, those patents may generate revenue, but no where close to what the company thought they’d probably get.

And that just leaves the subscribers and other services – which has also been on the downtrend.

Not to mention all the recent analysis being done on how this bid isn’t likely to go through (as the stock today sits at below $8 – a full 12% below the bid price).

Should I be speculative and buy Blackberry – and take advantage of the 12% difference?  No.  If anything, Fairfax will only take their offer lower now that they have their due diligence process – which ironically allows them to walk away without penalty.  If there was another buyer for Blackberry, they would have already shown themselves when the stock was at $10 and was thinking of going private.   And any chance of another buyer coming in flew out the door with this quarter’s earnings warning and failed BBM launch.  However, if I was a gambling man, and thought the deal would go through at $9 or a higher bid would come in, I’d probably buy the Nov 2013 $6 Calls (going for $2.05-$2.15) – at $9, you’d get just under 50% for ~40 days of waiting.

If the Fairfax transaction does take place, and they do continue into the handset business; focus on leapfrogging the competition (like Apple did when introducing the first iPhone).  I feel like that ship has long sailed – Apple and Samsung continue to issue out great hardware and it’ll be tough to be so innovative and come out over the top.  If anything, I believe the company should focus on the services and software market for mobile enterprise – where they definitely have a head start on some of the competition.

Its a sad day when what use to be the darling of the mobile industry is now being dissected to see what all its parts are worth.  Part of me hopes it can re-focus itself and find a market it can be dominant in again.  Only time will tell.

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