New deal for BlackBerry after Fairfax deal nixed
Waterloo-based company BlackBerry Ltd. had something other than financial losses to report to its shareholders on Monday, with the unexpected announcement of a $1-billion funding influx and a change in leadership.
A potential takeover deal with Fairfax Financial Holdings, whose interest was announced over a month ago, was abandoned in favour of a new deal, which will see John Chen step up as executive chairman and interim CEO of BlackBerry, in place of former CEO Thorsten Heins.
Chen, as CEO of Sybase Inc., orchestrated a successful turnaround in the software-based company by investing early in mobile information technology.
For Globe and Mail business reporter Sean Silcoff, who has carefully followed BlackBerry’s story, the collapse of the Fairfax takeover was not unexpected.
“There were a lot of doubts about whether Fairfax could complete its financing … There was a lot of skepticism in the market and we were hearing that they were having trouble lining up investors,” he said.
Without many other bids on the table, Silcoff noted that the alternate deal may have seemed like the best option to BlackBerry.
A leverage buy out, he explained, would have likely increased the company’s debt, because money for a takeover is often borrowed.
“You look at BlackBerry and you think to yourself, ‘well, this is a company whose revenues collapsed, that is bleeding cash and is this a good candidate to have all this debt added on to its balance sheet?’” he added.
Fairfax will be providing $250-million of the $1-billion in financing, with the rest coming from unnamed investors.
The announcement yesterday corresponded with a drop in stocks from $9 a share to $6.50 on the Nasdaq Market, a drop of 16.4 per cent.
Ruth Cruikshank, Wilfrid Laurier University business professor of strategy and strategic management, felt that a successful takeover deal would have “signaled a direction” for the company and given more confidence to shareholders.
“I think it was disappointing [for shareholders]. It just kind of prolongs the uncertainty,” she said.
Chen, however, may be in an optimal position to address the long-term change needed to reposition BlackBerry toward success.
“They’re looking for someone who’s willing to make substantive change and that’s what his experience speaks to,” Cruikshank continued.
“He sounds exactly like what the company needs,” said Silcoff, noting that Chen has demonstrated an ability to be a step ahead in technology, something which BlackBerry has been unable to do in recent years.
“Suddenly it gives people a new story to tell about the company. Who knows if that’s going to save them or not? But at least, that’s the kind of thing you would need for anybody trying to build a future for BlackBerry.”
Technology experts have speculated that BlackBerry will likely move from the handheld device market, having sustained large losses in recent years through its smartphone development, and more toward a software focus.
“The challenge will be attracting and holding onto software personnel within [BlackBerry],” wrote Wilfrid Laurier University business professor Kenneth Harling in an email.
“And part of the turnaround will involve instituting more professional management within the company.”
“The turnaround CEO will have to make some decisions about which markets they can compete in and which they can’t and that’s a hard decision,” said Cruikshank.
“They still have a company that’s largely oriented around a strategy that’s all about building and selling great handsets.”
While it’s difficult to predict what the dramatic move will mean for BlackBerry’s future, it’s clear that it won’t be an easy road ahead.
“If this company succeeds, it has to earn back,” said Silcoff.
“Nobody’s going to give this company the benefit of the doubt.”