Yet another BlackBerry head fake
Will anything come out of the latest rumors?
By Richard Saintvilus
Shares of beleaguered tech giant BlackBerry (BBRY) closed up more than 10% on Monday -- and continued to climb Tuesday -- after the company's board of directors made another announcement.
They were pretty vague terms, filled with tons of "company speak," which, in my opinion, means very little in terms of execution. However, what caught Wall Street's attention was that the board said it will also consider a possible joint venture or even selling the company outright. I don't believe investors care very much about BlackBerry's stubbornness to "accelerate BB10 deployments." It's clear that consumers are no longer interested in the devices. Selling the company, on the other hand, is certain to make headlines.
It's also been reported that the board has consulted JPMorgan Chase (JPM) as its financial adviser during its "exploration process." Essentially, after rumors swirled Friday that the company had expressed an interest to go private (TheStreet) and shield itself from scrutiny, today's news, if true, is yet another example of how dysfunctional this company has become.
I'm not going to bore you by rehashing BlackBerry's fall from grace. It's a foregone conclusion that the company has lost the mobie device battle (TheStreet) to Apple (AAPL) and Google (GOOG). While I'm willing to applaud the company for an obvious change of tone, including the fact that management is no longer insisting that it "knows best," I wouldn't get carried away here with the stock. Ideas about "exploring strategic alternatives" sound good but we've heard them before.
It's been over a year since BlackBerry management used these terms. In May 2012, the company said it was looking into "strategic business model alternatives." At the time, the stock was trading at around $11 per share. Two months later, shares would reach bottom at $6.56. Interestingly, in last year's announcement, the company said it had hired JPMorgan Chase along with RBC Capital to assist the company in its search for a partner to license its software. There were no takers.
Although Microsoft (MSFT) is always an "obligatory" mention as possible suitor, the company has never shown any interest. (Microsoft owns and publishes Top Stocks, an MSN Money site.) Both Facebook (FB) and Sony (SNE) were rumored to be interested. But the trail went cold. This time, who will step up and make a bid? If I were to place a bet, it would be on Lenovo (LNVGY) and possibly Huawei. Both have (in the past) expressed interest in not only BlackBerry, but also Nokia (NOK) (TheStreet).
The other issue that needs to be worked out, however, is how much BlackBerry is worth? Even with the stock's recent rise on these new rumors, it's inconceivable that anyone in their right mind would be willing to offer more than $14 per share. I will agree that BlackBerry's books look good. And the fact that the company has no debt is also attractive. But with eroding market share and poor cash flow, it's tough to get excited, even with the company's $3 billion cash.
Plus, let's not forget that anyone who buys this company must face the daunting task of facing both Apple and Google. I don't imagine that this is a reality that will appeal to too many potential suitors. I have absolutely no idea what's going to happen here. But given that management has used similar phrases to describe an "epiphany," I wouldn't be surprised if nothing ever comes of this. Accordingly, I would be cautious buying up these shares as they have all the makings of another head fake.
At the time of publication, the author was long AAPL.
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As you mentionned, MS would be a tremendous opportunity for both, as BBRY needs deep pockets to gain ease and time and MS may find a great opportunity using the BlackBerry NOC infrastructure (why is that major asset always ignored by analyst is beyond my comprehension), server side management system (BES10 = BYOD/MDM).
On the patent side, one should investigate about the encryption/security weakness recently discovered and learn about "elliptic cryptography" ... witch is a BlackBerry Patent. This might be a huge revenue source (licensing).
IMHO -as you suggested - this committee is nothing new. It only expose that a serious offer has been made (either going private via Prem Wastda & CAN funds, buyout or alliance) and before jumping in, BlackBerry have to advertise it to ensure there's no other offer (or make it sexier).
Question is : if going private is the goal, why advertise and make the SP raise ?
My fav : MS alliance (very likely targeted to the enterprise infrastructure/management/security) whatever form it may be, takeover being my latest choice.
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