On November 4th, 2013, BlackBerry announced that it would forgo its plan to sell its business. Instead, the company has decided to replace its CEO Thorsten Heins and obtain a $1 billion cash injection from private placement of convertible debentures. The news was followed by another plunge of BlackBerry’s share price – it dropped 16.4% to a price of $6.49, well below the buyout price of $9 a share offered by Fairfax earlier this year. Has the former phone giant lost yet another battle?
BlackBerry has been struggling since September 2013, when it announced that it was looking for bidders willing to acquire its business. The company received one offer from Fairfax, but neither BlackBerry nor Fairfax treated it as final and binding. The sale process eventually ended in a bust. After more than a month of negotiations, Fairfax did not close the transaction as it faced problems in securing financing. One of the reasons might have been that banks were reluctant to provide funding, given BlackBerry’s widely known deteriorating condition and rapidly dropping share price. No alternative bidder interested in the buyout transaction appeared on the horizon. BlackBerry reportedly undertook talks with technology giants such as Google and Samsung, but none of them ended successfully.
In the ‘back-up’ plan, Fairfax and other investors would subscribe to $1 billion of 6% unsecured subordinated convertible debentures, with a seven-year term, convertible into common shares of BlackBerry at a price of $10.00 per common share (representing a 28.7% premium on the closing price of BlackBerry common shares as of November 1, 2013). Furthermore, Mr. Heins was to step down as BlackBerry’s Chief Executive Officer. Since January, he has tried to stabilize the company but Mr. Heins has since admitted defeat and starting searching for a bidder willing to acquire BlackBerry’s business. Now, he is leaving the company with a $22 million payoff. Mr. John Chen will serve as Interim Chief Executive Officer pending completion of a search for a replacement. Because Mr. Chen’s prior experience involves leading the software firm Sybase, some suggested that his appointment might be perceived as a signal that BlackBerry would shift its business core from handset business towards software business. However, Mr. Chen has denied those speculations and explained that he had no intention of shutting down BlackBerry’s devices unit.
What are the odds that BlackBerry will return to the leadership position and revenue levels it enjoyed only couple of years ago? WSJ reports that though there is a glimmer of hope that the company will survive, albeit with lower revenue and profits. Its leaders will have to work hard on improving and promoting both the company’s software and devices, since the value of the software depends predominantly upon a large installed base of BlackBerry cell phones. Since unsold phones are piling up, this task seems even more challenging. Mr. Chen believes that BlackBerry has enough potential to build a long-term sustainable business and he apparently envisions the brand’s return to its previous glory.
Wall Street is waiting to see whether these action by Blackberry will turn the corner for the former giant, or if the company will merely delay an inevitable acquisition of the storied brand and its intellectual property.