BlackBerry (BBRY:US) Ltd. co-founder Mike Lazaridis’s potential bid for the struggling smartphone maker would face a battle for financing with Canadian investor Prem Watsa, who’s looking to take it private with his own buyout.
Lazaridis, who invented the BlackBerry smartphone and jointly ran the business until last year, said yesterday he’s hired Goldman Sachs Group Inc. (GS:US) to help him explore a bid for the Waterloo, Ontario-based company. He’s working on the effort with fellow BlackBerry founder Doug Fregin, who used to run the company’s operations.
An offer would compete with a $4.7 billion proposal from Watsa’s Fairfax Financial Holdings Ltd. (FFH), BlackBerry’s biggest shareholder, which is seeking partners to help finance a buyout. Fairfax unveiled its offer on Sept. 23, though it hasn’t named additional backers or announced financing for the purchase.
“Here’s a competing transaction that’s going to look out for financing the same way that Fairfax is out looking for financing,” said Catharine Sterritt, a Toronto-based risk arbitrage strategist at Bank of Nova Scotia. “It doesn’t make any sense to me that these guys will end up competing.”
Lazaridis’s prospective bid got a muted response from investors. The stock climbed just 1.1 percent yesterday in New York, even as the Standard & Poor’s 500 Index rose 2.2 percent. As of 10:20 a.m. today, the shares have fallen 0.8 percent to $8.14 -- below the tentative bid of $9 a share from Fairfax.
BlackBerry put itself up for sale after years of losing ground to Apple Inc. and Samsung Electronics Co. (005930) The company posted a 45 percent plunge in sales last quarter and a $965 million loss, dragged down by unsold inventory of its latest smartphones.
In a filing yesterday, the co-founders said their goal was “stabilizing and ultimately reinventing the company based on a plan developed by them.” The two men aren’t available for interviews, said Mike Sitrick, a spokesman who runs the firm Sitrick & Co.
Getting the money to finance a bid may not be easy, said David Cockfield, a fund manager with Northland Wealth Management in Toronto.
“It’s a tough business to be in,” said Cockfield, whose firm manages about C$225 million ($217 million), including a small amount of BlackBerry shares. Lazaridis “has to find someone who has the belief and is willing to write him some large checks,” he said.
In addition to Goldman Sachs, Centerview Partners LLC is serving as an adviser to Lazaridis and Fregin. The New York-based firm advised Silver Lake Management LLC, which helped finance Dell Inc.’s $24.9 billion buyout. That deal was approved by shareholders approved last month.
For either prospective bidder, finding the help of a large buyout firm may be challenging. BlackBerry has been shopped to Blackstone Group LP and KKR & Co., and both private-equity firms passed, people with knowledge of the matter have said.
Silver Lake said last month that it looked at taking a stake in BlackBerry and decided against it.
“We don’t have enough confidence to underwrite what the business plan will look like,” Michael Bingle, a managing partner at the firm, said Sept. 27 at a conference in New York. “When you don’t have that confidence, it’s tough to really pursue this opportunity.”
Fairfax isn’t working with Lazaridis and Fregin, said a person with knowledge of the matter, who asked not to be identified because the matter is private. John Varnell, vice president of corporate development at Fairfax, didn’t immediately respond to a request for comment.
Waiting for Approval
A special committee of BlackBerry’s board continues to review its options, Lisette Kwong, a spokeswoman for the smartphone maker, said in an e-mail.
“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.
The co-founders together control 8 percent of BlackBerry’s shares, the filing said. Toronto-based Fairfax, meanwhile, has a 9.9 percent stake.
BlackBerry agreed to pay Fairfax a fee of 30 cents a share, or $157 million, if it strikes a better agreement with another buyer. The breakup fee rises to 50 cents a share, or about $262 million, if the smartphone maker and Fairfax sign a definitive transaction. Under its agreement with BlackBerry, Fairfax has until Nov. 4 to make a definitive bid for the company.
Lazaridis, a 52-year-old who formerly worked as co-chief executive officer, and Fregin, the company’s ex-vice president of operations, have been friends since the fifth grade. They started BlackBerry in 1984 as engineering students.
The company pioneered the market for wireless-data devices, turning millions of users into e-mail addicts pecking away at their “CrackBerry” keyboards. Then Apple and Samsung ushered in the age of the touch-screen smartphone, and Lazaridis and his team were slow to adapt to the shift in consumer preferences.
Since quitting the top job at BlackBerry and then leaving its board in March, Lazaridis has focused his attention on quantum computing and nanotechnology, the science and technology of things approaching the size of an atom. He and Fregin now own Quantum Valley Investments, which focuses on developing quantum-computing technology.
Fregin left BlackBerry in 2007. Thorsten Heins became CEO of the company last year, and Lazaridis stayed on as vice chairman until May.
While Lazaridis and Fregin say they have a turnaround plan for BlackBerry, the company has become increasingly open to a breakup scenario, a person with knowledge of the matter said. Companies such as SAP AG (SAP), Cisco Systems Inc. (CSCO:US) and Samsung, which were approached last week by BlackBerry advisers, have indicated they’re only interested in parts of the company, people familiar with the discussion said.
Jim Dever, a spokesman for Walldorf, Germany-based SAP, declined to comment, as did Cisco’s John Earnhardt. Chenny Kim, a spokeswoman for Samsung, said her company has ruled out a bid for all of BlackBerry.
A breakup would let parties bid for BlackBerry’s most valuable pieces, such as its patents or enterprise network, the people with knowledge of the discussions said.
“If this is your company and you’re starting to see that it might be a real option this thing gets broken up and fed to the wolves, that’s a tough ending,” said Colin Gillis, an analyst at BGC Partners LP. “If anyone is going to see value in this company, it would be Lazaridis and his partner.”
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