BlackBerry $4.7B Deal Buy-Out, A Consortium Led by Fairfax Financial Holdings

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Deal still subject to due diligence, regulatory approval

Troubled smartphone maker BlackBerry has signed a provisional agreement to be bought by a consortium led by Fairfax Financial Holdings Limited, which already owns approximately 10 per cent of the publicly traded shares in the Waterloo, Ont.-based company.


Trading of the company’s shares was temporarily halted on the Nasdaq and the Toronto Stock Exchange early afternoon Monday after BlackBerry announced the deal, which is still subject to due diligence. Trading resumed around 2 p.m. ET.

BlackBerry said in a news release that it has signed a “letter of intent agreement” under which the company’s shareholders would receive $9 US cash for each BlackBerry share they hold and the consortium would acquire, for cash, all of the outstanding shares of BlackBerry not already held by Fairfax.

The consortium would take the company private.

Deal worth $4.7B

Fairfax is a financial holding company based in Toronto that owns a number of subsidiaries, primarily in the insurance sector. Under the terms of the deal, it would contribute the shares it currently holds into the transaction, which is valued at approximately $4.7 billion and still subject to approval by regulators and, since BlackBerry is currently a publicly traded company, by its shareholders.

The consortium, which is reportedly seeking financing from Bank of America Merrill Lynch and BMO Capital Markets, has six weeks to conduct due diligence, during which time BlackBerry can seek better offers.

The due diligence is expected to be completed by Nov. 4, and BlackBerry said Monday that it hopes to have a “definitive transaction agreement” in place by then.

But up until that date, BlackBerry can “actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals,” the company said.

“Importantly, the go-shop process provides an opportunity to determine if there are alternatives superior to the present proposal from the Fairfax consortium,” said Barbara Stymiest, chair of BlackBerry’s board of directors, in the press release.

Fairfax CEO resigned from BB board in August

The board of directors has approved the provisional agreement on the recommendation of a special committee that was formed in August in order to feel out potential buyers and examine options for the financially struggling company.

That same month, the head of Fairfax, Prem Watsa, resigned from BlackBerry’s board because of what at the time was billed a potential conflict of interest. The move was seen already then as a sign that Fairfax was considering buying BlackBerry.

In January 2012, Watsa and Fairfax had upped their stake in what was then still Research In Motion after the company’s founders, Jim Balsillie and Mike Lazaridis, stepped down as co-CEOs and the company revamped its board of directors and appointed Thorsten Heins as its new chief executive.

Watsa said in a statement Monday that the sale “will open an exciting new private chapter for BlackBerry, its customers, carriers and employees.”

“We can deliver immediate value to shareholders while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world,” he said.

Device sales disappointing

The once mighty maker of mobile phones renowned for their secure method of communication and messaging has been undergoing restructuring ever since its new raft of handsets, released earlier this year, did not sell as well as the company had hoped they would.

On Friday, it announced it would be laying off 4,500 workers and reported disappointing financial results. Trading in BlackBerry shares was also halted for a brief period leading up to and following that announcement.

Blackberry Q10

Blackberry Q10

BlackBerry said on Friday that it expects to have a non-cash loss in the second quarter of this fiscal year of $930 million to $960 million, largely due to its large inventory of unsold devices. The company said it sold only 3.7 million smartphones in the second quarter. By comparison, Apple reported on Monday that it had sold nine million of its two new iPhone models in the three days following the launch of the handsets on Friday.

BlackBerry is due to report its quarterly financial results on Friday.

The stock market responded positively to Monday’s news of a possible sale, and the company’s stock rose about five per cent to a high of $9.20 US on the Nasdaq (and to $9.45 Cdn on the TSX) after trading resumed at 2 p.m. ET. It later settled at around $8.80 US ($9.04 Cdn on the TSX) by late afternoon.

The company’s stock has at times shown resilience through its recent troubles, rising to as high as $18.32 US in January ahead of the release of its new handset, but it has also fallen as low as $6.22 US last September.