(Reuters) -
Smartphone maker BlackBerry has agreed to go private in a $4.7 billion
deal led by its biggest shareholder, allowing the on-the-go email
pioneer to regroup away from public scrutiny after years of falling
fortunes and slumping market share.
The $9 a share tentative offer,
from a consortium led by property and casualty insurer Fairfax
Financial Holdings Ltd, will set a floor for any counteroffers that
might emerge for Blackberry, which has been on the block since August.
As an investor, Fairfax Chief Executive Prem Watsa is often described as the Canadian
Warren Buffett because he also takes the long view.
Blackberry
shares peaked above $148 in June 2008 when the company's devices were
still the top choice for bankers, politicians and lawyers.
The stock, halted pending the announcement on Monday, closed below the offer price on
Nasdaq, at $8.82, indicating the market's lack of faith that other bids would emerge.
"I
would think a competing buyout offer is quite unlikely," said Elvis
Picardo, strategist at Global Securities in Vancouver. "The miniscule
premium, and the muted market reaction, is another indication that the
market views the odds of a competing bid as slim."
BlackBerry,
based in Waterloo, Ontario, once dominated the market for secure
on-your-hip email. But it introduced consumer-friendly touchscreen
smartphones only after it lost the lead to
Apple Inc's iPhone and devices using
Google Inc's Android operating system.
BlackBerry
has until November 4 to seek superior offers, which the Fairfax group
has the right to match. The group is seeking financing from Bank of
America
Merrill Lynch and BMO Capital
Markets to complete the deal and has until that November 4 deadline to conduct its due diligence.
A
BlackBerry statement did not name members of the consortium, although
many in the financial community see Canada's deep-pocketed and
influential pension funds as likely participants.
"We
need to be careful given disclosure constraints, but we can say that we
are focused on a strong Canadian solution," said Fairfax spokesman Paul
Rivett.
The pension funds, with
assets around the world, traditionally take a long-term view in their
investment decisions. Officials at the biggest funds either did not
reply to requests for comment, said they had no information or declined
to comment.
"We never discuss
whether or not we plan to enter into any investment," said Deborah
Allan, spokeswoman for Ontario Teachers' Pension Plan.
CANADIAN BUFFETT
Watsa
stepped down from the BlackBerry board of directors in August, citing a
potential conflict of interest, as the company said it was exploring a
sale.
Canada's Globe and Mail
newspaper quoted Watsa as saying that a significant amount of the equity
in the deal will come from within the country. The consortium included
neither strategic players, nor other technology firms, he said.
BlackBerry's recent challenging years have been in stark contrast to the rapid growth it previously enjoyed.
The
Z10 touchscreen device that the company hoped would claw back market
share from the iPhone thudded badly at launch in January, and it has
lost ground even in emerging
markets where it had carved out an important role.
A
spokeswoman for phone company MTN Nigeria, for example, said that while
BlackBerrys are still very relevant in Nigeria, "the adoption rate has
declined significantly from a year ago due to lack of newer low to
mid-end smart phone models." In
Brazil,
locally made iPhones are the first choice for government workers. "I
have never seen a Brazilian government employee using a BlackBerry,"
said one government source.
And while some U.S. government agencies still use only the BlackBerry, others allow devices like iPhones as well.
The
American Lawyer surveyed 83 of the top 200 U.S. law firms in November
2012 and found that 90 percent of them expected to see a drop-off in the
number of Blackberry devices.
John
Sroko, chief information officer at Duane Morris, said that three years
ago the firm only offered BlackBerry devices because they were deemed
most secure. But in recent years, the firm has allowed their lawyers to
use other devices too.
"People like
Blackberry for the keyboard and email," he said. "The switch was caused
by a better browsing experience and the apps."
NOBODY ELSE
Donald
Yacktman, president and founder of Yacktman Asset Management which
holds something under 1 percent of BlackBerry according to Thomson
Reuters data, said he does not expect a counteroffer to emerge.
"This is pretty much Plan B. They've clearly not hit the targets," he said.
Jack
Gold, principal analyst and founder of J. Gold Associates, said "this
is probably the best possible outcome of several unattractive options
for BlackBerry."
"Going private
and potentially bringing back the founder of the company, Mike Lazaridis
(as has been rumored) could buy them some time to put the house in
order," he noted.
Lazaridis, BlackBerry's co-CEO until early 2012 and a board member until March, did not respond to requests for comment.
On
Friday, BlackBerry said it would step back from the hypercompetitive
consumer market and focus on what it calls enterprise customers -
businesses, governments, legal firms and security forces.
The
company warned it would report revenue on the sale of just 3.7 million
of its phones for the entire second quarter, and write down almost $1
billion.
By contrast,
Apple sold 9 million iPhone 5s and iPhone 5c models in three days after their Friday launch.
A
Defense Department official said the Pentagon had more than 600,000
mobile devices in use in spring, including 470,000 BlackBerrys, 41,000
devices with Apple operating systems and 8,700 smart phones with Android
systems.
"We are moving towards a secure mobile communications infrastructure that supports a variety of devices," the official said.
Blackberry
has rarely traded below $9 a share even in recent years when it issued
profit warnings, slashed jobs and launched devices that arrived late to
disinterested audiences.
In the past 12 months the stock has risen as high as $18.32 and fallen as low as $6.22 on the Nasdaq.
BDT
& Company, LLC, BofA Merrill Lynch and BMO Capital Markets are
acting as financial advisors, and Shearman & Sterling LLP and
McCarthy Tétrault LLP are acting as legal advisors to Fairfax in
connection with the transaction.
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http://www.reuters.com/article/2013/09/24/us-blackberry-offer-fairfax-idUSBRE98M0YI20130924