BlackBerry Ltd. (BB) is more open to a breakup of the company amid concerns that Fairfax Financial Holdings Ltd. (FFH) may be unable to line up funding or partners for a $4.7 billion buyout, a person with knowledge of the matter said.
Companies such as SAP AG (SAP), Cisco Systems Inc. (CSCO:US) and Samsung Electronics Co. (005930), which were approached last week by BlackBerry advisers, have indicated they’re only interested in parts of the company, people familiar with the discussions said. A breakup would let parties bid for BlackBerry’s most valuable pieces, such as its patents or enterprise network, said the people, who asked not to be identified because the talks are private.
“If you break up the company, you’re going to get more than the company is worth right now,” said Sachin Shah, a strategist in special situations and merger arbitrage at New York-based Albert Fried & Co. Whether Fairfax’s bid is successful or not, “breaking it up sounds more appetizing for all involved,” he said.
BlackBerry has been soliciting rival bids after agreeing last month to a tentative $4.7 billion offer from Fairfax, its largest shareholder. Under that pact, BlackBerry has until Nov. 4 to consider other proposals while Fairfax and a group of investors conduct due diligence and line up financing. Investors have grown increasingly concerned the current deal will fall apart, with the stock trading 10 percent below Fairfax’s $9-a-share offer.
The smartphone maker was pushed to consider selling itself after years of losing market share to Apple Inc.’s iPhone and devices powered by Google Inc.’s Android. Even as BlackBerry’s smartphones lose favor with consumers, its corporate services and patents could prove more enticing. The patents alone are worth as much as $3 billion, according to analyst estimates.
For now, the only public offer for BlackBerry is from Fairfax. The investment firm’s chief executive officer, Prem Watsa, stepped down from BlackBerry’s board in August in order to put together his bid. Watsa hasn’t named any of the other members in his buyout consortium, and while the group is seeking funding from Bank of America (BAC:US) Corp. and BMO Capital Markets, no financing deal has been announced.
Alberta Investment Management Corp. and Canada Pension Plan Investment Board, two of Canada’s largest pension funds, have both said they would consider joining a bid for BlackBerry, though neither has committed to the idea.
Seeking to spark a bidding war for the smartphone maker, BlackBerry’s advisers have been reaching out to its technology partners to gauge interest, the people said. SAP, Cisco and Samsung aren’t interested in making an offer for the whole company, though they may consider individual parts, they said.
SAP is evaluating whether parts of the company, including its enterprise business, may be attractive, one of the people said. The enterprise division securely manages fleets of smartphones, including BlackBerrys, for business customers.
Intel Corp. (INTC:US) doesn’t want to bid for all or part of the company, though it wouldn’t rule out evaluating the company’s patents, said a person familiar with the chipmaker’s thinking.
Jim Dever, a spokesman for Walldorf, Germany-based SAP, declined to comment, as did Cisco’s John Earnhardt and Intel’s Robert Manetta. Chenny Kim, a spokeswoman for Samsung, said her company has ruled out a bid for all of BlackBerry.
BlackBerry’s complete portfolio of smartphone and wireless network patents is worth about $1.6 billion, according to Steven Li, an analyst at Raymond James Financial (RJF:US) in Toronto. Christopher Marlett, CEO of MDB Capital Group, a patent-focused investment bank, estimates the portfolio could fetch $2 billion to $3 billion.
The enterprise network, meanwhile, could be worth $550 million to $1.1 billion, said Li, who rates BlackBerry (BBRY:US) the equivalent of a hold. Its value may depend in part on how quickly BlackBerry’s subscriber base declines. The company’s customer base slipped to 72 million in June from 76 million in March. Since then, BlackBerry has stopped disclosing a number.
The phones themselves are unprofitable and a buyer may just shut down that business, so that operation isn’t considered an asset, Li said.
BlackBerry biggest asset may be its cash, which it had $2.6 billion of at the end of August.
Reuters reported last week that a number of technology companies, including Cisco, Google, Intel and SAP, were in talks with Waterloo, Ontario-based BlackBerry about a sale.
Speculation that a rival bid may emerge has helped drive up the stock more than 5 percent in the past three days. Still, it remains down 32 percent this year and have fallen about 95 percent from its 2008 peak. The shares closed at $8.11 in New York.
BlackBerry’s latest outreach follows earlier attempts to find buyers. Before announcing in August that it was formally considering takeover bids, the company’s bankers spent almost a year canvassing potential acquirers, people with knowledge of the matter said at the time. JPMorgan Chase & Co. (JPM:US) and RBC Capital Markets quietly contacted would-be bidders and found little interest in the whole company, especially among private-equity firms, the people said.
Paul Rivett, president of Toronto-based Fairfax, declined to comment on the sale process today.
Lisette Kwong, a spokeswoman at BlackBerry, said the company’s board is working with independent financial and legal advisers to conduct “a robust and thorough review” of its strategic options. “We do not intend to disclose further developments with respect to the process until we approve a specific transaction or otherwise conclude the review of strategic alternatives,” she said.
Leo de Bever, the CEO of Alberta Investment, said this week that the bidding process has been unusual and that BlackBerry will probably be broken up.
“It’s the most bizarre sales process I’ve seen in a long time,” he said in an interview. “We’re looking at it, but nobody’s come to us with a proposal that makes any sense.”
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