John Chen, who will attempt to turn around BlackBerry Ltd. (BB) as its new executive chairman and interim chief executive officer, will get $3 million in salary and bonuses, as well as restricted stock valued at $85 million.
Chen, named to the post on Nov. 4, will be eligible for $1 million in base salary and a performance bonus of $2 million, the Waterloo, Ontario-based company said yesterday in a filing. He will also be awarded 13 million shares that will vest over the next five years.
His appointment to the CEO job was announced the same day Fairfax Financial Holdings Ltd. (FFH) said it wouldn’t proceed with its tentative $4.7 billion offer to buy BlackBerry. Instead the investment firm is orchestrating a $1 billion bond deal to bolster BlackBerry’s cash position. In a separate filing yesterday, BlackBerry disclosed the other backers of the debt sale: a group of investors that ranges from Qatar Holding LLC to Brookfield Asset Management Inc. (BAM/A)
Chen, 58, was named interim CEO while BlackBerry looks for a permanent replacement for Thorsten Heins, the outgoing chief. Heins is slated to get a termination payment of about $14 million, based on estimates from a company filing in May. The company has declined to comment on the pay package.
If Chen’s employment is terminated without cause, he will receive his salary for the remainder of that year, plus two times his base salary and bonus, the company said. That would total $6 million.
The shares rose less than 1 percent to $6.56 at the close in New York. The stock has fallen 45 percent this year.
In taking the helm at the struggling smartphone maker, Chen will try to replicate the success he had turning around Sybase Inc. After years of shedding market share to Apple Inc. (AAPL:US) and Samsung Electronics Co. (005930), BlackBerry is grappling with a plunge in sales and mounting losses.
Investors in the $1 billion debt sale include Mackenzie Financial Corp., Markel Corp. (MKL:US) and Canso Investment Counsel Ltd. Canso is investing $300 million, Fairfax is putting in $250 million, and Mackenzie is contributing $200 million, according to the filing. Markel and Qatar Holding are each adding $100 million, while Brookfield contributed $50 million.
Despite BlackBerry’s challenges, the bonds are a safe investment, said Sameet Kanade, an analyst at Jacob Securities Inc. in Toronto. The debt holders will get first crack at BlackBerry’s assets in a bankruptcy. If, on the other hand, the shares rise, the debentures can be converted into stock at $10 a share, he said.
“On the downside, you’re protected,” Kanade said. “And on the upside, you could make a killing.”
The move to borrow the funds underscores BlackBerry’s deteriorating cash situation. Its cash (BBRY:US) and short-term investments fell by almost $500 million last quarter to $2.3 billion, according to data compiled by Bloomberg. At that rate, the money will be gone by the end of next year.
BlackBerry is also seeking a tax refund of as much as $1 billion before the end of this year, according to two people familiar with the situation. The company is negotiating for a larger refund than the $500 million previously disclosed and is asking the Canadian government to speed up the process, said the people, who asked not to be identified because the discussions are private.
The debenture transaction is expected to be completed within two weeks, according to the filing. If it hasn’t closed by Nov. 27, any of the parties can terminate the agreement. Fairfax has an option to arrange for $250 million more of the debentures within 30 days of the transaction closing.
BlackBerry must pay a termination fee to the bond investors if it enters into an agreement to sell the company. The fee ranges from $135 million to $250 million depending on the circumstances.
Cerberus Capital Management LP, the New York-based firm that specializes in investing in distressed assets, had been discussing a joint offer with BlackBerry’s co-founders and chipmaker Qualcomm Inc. (QCOM:US) before BlackBerry negotiated the bond deal, two people with knowledge of the matter said last week.
BlackBerry’s new creditors are a mix of U.S., Canadian and Qatari investors. Canso is a closely held money manager based in Richmond Hill, Ontario, that was founded by John Carswell. Brookfield, Canada’s biggest manager of alternative assets, invested through its Brookfield Investment Management unit.
Brookfield’s “portfolio managers believe the debentures are an excellent investment,” Andrew Willis, a spokesman for the company, said in an e-mail.
Mackenzie, a Toronto-based investment manager, is the eighth-largest investor in Fairfax. It held about 294,000 shares as of July 31, along with some BlackBerry shares, according to Bloomberg data. Qatar Holding is a unit of the emirate’s sovereign wealth fund. Markel is a holding company based in Glen Allen, Virginia, that offers insurance.
Fairfax and its partners are restricted from selling their debentures for at least a year after purchasing them, according to the filing.
“I’m surprised that there’s no major U.S. fund involved,” Kanade said. “But the investment is as safe an investment as you can get.”
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