Further Details on Planned Blackberry Sale

When BlackBerry announced on Friday that it had nearly $1 billion in unsold phones and was about to cut a third of its workforce, the market’s reaction was immediate – the Wall Street Journal reports that the company’s stock price dropped below $9. The news was followed by BlackBerry’s announcement, released on Monday, that the company has signed a letter of intent with a consortium led by Fairfax Financial (BlackBerry’s largest shareholder with a 10% stake), under which Fairfax has offered to acquire the company and take it private subject to certain conditions, including due diligence.

What does this move mean for the former phone giant?

According to the New York Times, BlackBerry signed the letter of intent, in light of its desperate financial state, to halt the fall in the company’s stock. Public announcement of the preliminary deal may also attract competing offers for part or all of the company. In such a scenario, the intended deal with Fairfax may simply be a ‘fallback’ option if no more compelling offer materializes.

Looking at the terms of the agreement, it is apparent that Blackberry is in a weak negotiating position. There is no assurance that the transaction will be completed. Fairfax is not obliged to ultimately come forward with a firm offer and it may decide to lower its offer after scrutinizing BlackBerry’s books. Due diligence is expected to be done by 4th November and it the meantime, BlackBerry is permitted to shop for alternative proposals. In light of Blackberry’s poor sales of new phones, Bloomberg reports that there is little certainty that other bidders will appear on the horizon.

It was not always the case that BlackBerry was a minor market player with almost no negotiating power. The story of the rise and fall of this tech giant has many chapters. BlackBerry began as a pioneer marketing phones for the enterprise world- dominating it straight away. However, as soon as the smartphone avalanche had been started by iPhone and then strengthened by smartphone manufacturers that used Google’s Android operating system, BlackBerry turned from a dominant to a marginal device. According to research firm IDC; it now holds just 2.9% of the market, compared with 20% in Autumn 2009 when it was the leading smartphone for business circles.

Fairfax believes that BlackBerry can rise from the ashes to be an important market player again. BlackBerry’s cash file, patent portfolio and security network for data transmission are very valuable assets for any phone company to have and may serve as a good starting point for further market expansion. Moreover, the New York Times alleges that BlackBerry has plans to develop its software business by turning the BlackBerry Messenger instant-messaging platform into a social media platform and investing in new software that enables corporations to control and manage employee’s mobile devices. Mr. Watsa, Fairfax’s chairman and chief executive, believes that taking company private may allow for the smooth introduction of the emergency plan, without all the attention and noise from the market.

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