BlackBerry deal is a long way from done

Investors should stay as far as possible from this stock.

By Jonathan Berr Sep 25, 2013 9:11AM
When BlackBerry (BBRY) announced plans in August to pursue "strategic alternatives," many pundits wondered whether the once-dominant smartphone maker would find any buyers. This week's announcement of a $4.7 billion acquisition of the company hasn't silenced those doubts.

 

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.

 

A Blackberry Z10 is displayed at a store in Toronto, Canada, on February 5, 2013 (© Mark Blinch/Reuters)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.


4Comments
Sep 25, 2013 10:03AM
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All tech stocks are risky and most are super overvalued. Eventually competition will bring all of them into line. Blackberry was valued at $85B and now look. The only companies that can maintain current value are ones without any competition (trusts, monopolies): oil companies, health care, etc, and that's only possible providing they maintain their crony capitalism status. (until the people rise up and break up this entire corrupt system).
Sep 25, 2013 2:03PM
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If the 2 bill cash on hand is accurate(?), they actually offered 2.7 bill, not 4.7 - intellectual properties are difficult to value and the hardware side is future write down liability, not an asset. BES is dwindling and BBM going cross platform is hardly a game changer.  Most of their sales are legacy devices. I don't think Prem has what it takes to make this happen and he is already underwater with Fairfax's stake in BB.  I think he sells off the parts to try and mitigate losses if he does get it. If he teams up with Lazardis maybe he puts a deal together but Mr. L would never demolish BB so Prem would have to be in for the long haul.   
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