BlackBerry deal is a long way from done
Investors should stay as far as possible from this stock.
Indeed, the $9-per-share offer by its largest shareholder, Fairfax Financial Holdings, is hardly a done deal. First, Fairfax took the highly unusual step of announcing its plan to take BlackBerry private without having already lined up the required financing. BlackBerry can still shop for a better offer until Nov. 4, though analysts think it's unlikely to find any.
If Fairfax backs away from the purchase, the Waterloo, Ontario, smartphone maker could have to pay a breakup fee to Fairfax of more than $260 million. The acquisition, which represents a tiny 3.2% premium over BlackBerry's Sept. 20 closing price, also is subject to due diligence.
According to Bloomberg News, the Fairfax deal marks the "cheapest valuation ever for a North American technology or telecommunications takeover." The appeal of BlackBerry to Fairfax is hard for many people to imagine. Fierce competition from Apple (AAPL) and Google (GOOG) have pushed down BlackBerry's sales, eroding almost $79 billion in market valuation.
BlackBerry shares, which have slumped more than 25% this year, will continue to be volatile until the uncertainty surrounding the Fairfax offer is addressed. It's possible that Fairfax will change its mind after it examines BlackBerry's books as part of the due diligence.
One of the few things that BlackBerry has going for it is its portfolio of intellectual property that one analyst says may be worth about $1 billion. But even if such a sale occurs, it would only delay the company's inevitable decline.
Here's the bottom line: Investors who don't own the shares shouldn't buy them, and those unlucky enough to hold them should sell them immediately. The risks of owning BlackBerry's stock will far outweigh the potential benefits for the foreseeable future.
Copyright © 2014 Microsoft. All rights reserved.
The company is scrambling to protect its equities arm, which could face declining volume and revenue as competitors close the gap.
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