BB - BlackBerry

[blainehodder]

TORONTO - The Globe and Mail reports that Fairfax Financial Holdings Ltd. (TSX:FFH) is seeking more than US$1 billion from other investors to help fund a takeover of BlackBerry Ltd. (TSX:BB).

 

Fairfax said on Monday that it's leading a group that would buy the Canadian smartphone maker but didn't disclose publicly how much other investors would contribute or identify any of its potential partners.

 

The Globe, citing unidentified sources, said that as of Tuesday only one pension fund is seriously considering joining the Fairfax-led consortium — the Ontario Teachers Pension Plan, one of Canada's largest institutional investors.

 

The pension plan declined to comment for the Globe article and has declined to comment on previous reports that link it to deals before they're announced.

 

Fairfax's proposal values BlackBerry at US$4.7 billion but makes a number of conditions that would allow the Toronto-based financial group to walk away from the deal.

 

The Globe report says Fairfax is pitching a deal that would be financed with $3 billion of bank loans, $1 billion of equity from institutions and Fairfax's current 10 per cent stake in BlackBerry, worth about $470 million.

 

http://www.montrealgazette.com/business/Globe+Fairfax+seeking+billion+from+other+investors+BlackBerry/8956533/story.html

 

so it looks like so far one tentative yes from a ca pension fund and pw is not going to put up another dime. not surprised nobody seems to want to do this. they are probably asking, if this is such a great deal PW, why won't you put up any more money?

 

Interesting for sure...but is he not putting up more money when he levers his equity interest into a bank loan?  It seems he is indeed taking on more risk here for FFH. 

[Guest wellmont]

no he is not putting up more money. but his stake does become more risky with debt ahead of it. he does also increase his control and share of the upside because some of the new money will be debt capital. not so confidence inspiring if you are thinking about joining his consortium.

[blainehodder]

Isn't the bank loan recourse against FFH equity on a prorata basis? Or would the bank loan be structured 100% against the consortium equity only? if BBRY goes to 0 is FFH/Teachers not on the hook for the bank loan?  Why would a bank do this deal?

 

 

[Guest wellmont]

I don't know the specifics. I believe most of the loan will be a bank loan against bbry assets. i don't think he is going to risk ff equity here. there will be some junk debt with a claim on what's left. and they are talking about some warrants or a kicker for the junk bond holders. if this does not work the equity will get zilch imo.

[SI]

I will add this bank loan mkt is on fire. Between the Dell and L3 print, now would be the time to get this in print before banks/hot money in these funds(67 weeks of inflows running) come to their senses.

[Guest wellmont]

02:25 PM EDT, 09/25/2013 (MT Newswires) -- Blackberry (BBRY) fell 4.8% to $8.12 a share after an analyst at Bernstein Research questioned whether the pending buyout offer from Fairfax Financial for the troubled smartphone maker would actually go through.

Shares are below the $9 a share offer made by Fairfax.

Pierre Ferragu of Bernstein Research said in a note that he considered the transaction "unlikely to close," as the buyer still has to find financing for the purchase as well as partners in the acquisition.

"As Fairfax, BlackBerry's largest shareholder, is not willing to commit any more equity, we think it will be unlikely that enough other investors will be joining the bid that sounds like a last chance rescue attempt for Fairfax's stake," Ferragu added.

Ferragu reiterated an Underperform rating on Blackberry shares and a $7 price target for the stock.

Price: 8.12, Change: -0.41, Percent Change: -4.83

http://www.mtnewswires.com © 2013 MT Newswires, a Division of MidnightTrader, Inc. All rights reserved.

[Avyalake]

Hope the experts on this board can answer me on the following.  I see that the longs on bbry are of two types: balance sheet bulls and business bulls. The former seem to believe that there is sufficient downside protection and the latter believe that bbry can reach a fairly satisfying state given enough time on its own. The group investors negative on this are bearish because the hw business is dead. And I agree with that. Well almost. Also I believe it doesn't make sense for bbry to focus on the prosumer phones (it is a dead on arrival plan to continue). I also accept that hw division is probably net negative say to a billion $ (just a guess).

 

But here is what we know for sure (with 100:1 odds in favor), the value of the balance sheet. Cash is cash. Also patents,  TAT, certicom, services & secure network, BBM are worth non-zero. I would say that they are worth at least their replication value adjusted for depreciation and should be of the order of a couple of billion $. These two together get you to the current value.

 

This is what we know to be likely (say odds 20:1 ) in favor of bbry hw demise. Even accounting for losses from this wind down, the current market cap is cheap.

 

What is the most obvious factor with high likelihood that I am missing that the shorts are so sure of even at this price? I am merely curious. I want to know what is the mistake in my thinking?

[Guest wellmont]

cash is cash when it's not declining.  it's declining here.

 

you are right about "prosumer'.  the people selling bbry simply see a horrific quarter, a very weak bid, non binding, no financing, nobody in the consortium, pw not putting any more money up, and no alternative bids in sight. until we get more clarity on these items, the stock is going to be weak. pw consortium can change this by firming things up with real action.

[alwaysinvert]

So, is no one arbing this at these levels? I know the offer is non-binding but isn't there a possible reputational problem in lowering the bid for Watsa? And is a competing bid really completely out of the picture?

[Avyalake]

cash is cash when it's not declining.  it's declining here.

 

you are right about "prosumer'.  the people selling bbry simply see a horrific quarter, a very weak bid, non binding, no financing, nobody in the consortium, pw not putting any more money up, and no alternative bids in sight. until we get more clarity on these items, the stock is going to be weak. pw consortium can change this by firming things up with real action.

 

These are the numbers from morningstar : Yearly starting 2011 (1,791, 1,527, 1,549)

Quarterly(1,938, 2,065, 2,731, 2,654, 2,824) Then 3.1?

And probably down to 2.5 now after a huge write down. Also there is a business restructuring.

 

Is it that obvious that there is no hope on the cash side?

Also lets take pw completely out of the picture. May be his likelihood of not being able to come up with some deal is a temporary head wind, but doesn't the financial, and business reality as we know today tell us there may not be much to lose.

[Guest wellmont]

i did not say cash was going to zero. I take issue with those valuing cash as if it is not going to decline. this business needs cash to operate/liquidate so no buyer is going to use $2.6b as the figure for distributable cash. doubt it stays at 2.6b. again I ask if there is value in these assets why don't people want them? why is pw bidding against himself? yes there is a floor. probably between $6 and $7. where is the ceiling?

[Guest wellmont]

So, is no one arbing this at these levels? I know the offer is non-binding but isn't there a possible reputational problem in lowering the bid for Watsa? And is a competing bid really completely out of the picture?

 

I think there may be reputational risk, and financial risk if he walks away. none whatsoever if he drops his bid to $8. people will still say he is rescuing bbry shareholders. his incentives are to watch it twist in the wind, because he does not have a binding bid on the table. if he must walk away, he can say nobody else had the vision he did that bbry would work out well for the buyer. He can then regroup, and seek a new bod and new management to run the company like it needs to be run. He would have a chance to purchase more shares in the $6 range imo.

[Avyalake]

i did not say cash was going to zero. I take issue with those valuing cash as if it is not going to decline. this business needs cash to operate/liquidate so no buyer is going to use $2.6b as the figure for distributable cash. doubt it stays at 2.6b. again I ask if there is value in these assets why don't people want them? why is pw bidding against himself? yes there is a floor. probably between $6 and $7. where is the ceiling?

 

Thanks wellmont. But again keeping pw out of picture why doesn't anyone else want it? That no one wants / should want this because no else wants it is somehow not satisfying, right? What is toxic about this set of assets.

 

We know for sure that the future is about mobile devices. A skilled team that can create compelling possible hw configurations (not phones necessarily) in the future is still a good optionality if right sized?

 

So again it is not clear why no one would even touch it for other than way distressing prices?

[Yours Truly]

Good arbitrage play here based on PW's reputation and a potential higher bid from an outsider or former-CEO?

[Guest wellmont]

Thanks wellmont. But again keeping pw out of picture why doesn't anyone else want it? That no one wants / should want this because no else wants it is somehow not satisfying, right? What is toxic about this set of assets.

 

We know for sure that the future is about mobile devices. A skilled team that can create compelling possible hw configurations (not phones necessarily) in the future is still a good optionality if right sized?

 

So again it is not clear why no one would even touch it for other than way distressing prices?

 

because it's clear now that no other party is going to make phones with bb10 on it. it's of no value to any strategics. so the hardware unit is going to be shut down. this is a major headache for whoever buys this company. do you see warren buffett getting involved in situations like this? he wants Easy hurdles that he can step over. this is not one of them. there may be value here in the $9 range. but lots of people say "why bother"?

 

 

[zenith]

update, Prem Watsa says:

 

"We wouldn't put our name to such a high-profile deal if we didn't feel confident that at the end of the day that our due diligence would be fine and we'd be able to finance it," Watsa said in an interview.

"Short term these things fluctuate, there is speculation one way, there's speculation the other way," Watsa said of the movement in BlackBerry's share price. "We never pay too much attention to the marketplace."

"BlackBerry is one of Canada's great success stories," he said. "There is no question it's fallen on hard times recently, but we have every confidence it will be successful again. We're putting a consortium together to make sure that that takes place."

Asked if the bid price could be reduced, Watsa said he didn't expect that to happen unless the review of BlackBerry produced negative surprises. He said Fairfax had never changed the terms of a deal in 28 years.

[zenith]

Bank of America/Merrill Lynch dropped analyst coverage of BBRY yesterday, either related to providing financing or consideration of or I-banking advice

[Alekbaylee]

Friday earning call cancelled...

http://business.financialpost.com/2013/09/25/blackberry-ltd-cancels-friday-earnings-call/

[rkbabang]

Looks like Google is going to try to scoop up ex-BBRY employees for Motorola.

 

Google’s Motorola establishing a new office in Kitchener-Waterloo

 

[Viking]

BlackBerry Manufacturing Partner Looking to Bail: http://allthingsd.com/20130926/blackberry-manufacturing-partner-looking-to-bail/?mod=atd_homepage_carousel

 

Quotes from the article: “We are faced with a strong possibility of disengaging with BlackBerry,” Mondello said. “Our team has worked diligently over the past few days to comprehend the recently announced changes. … We’re in discussions right now on how we’re going to wind down the relationship.” Mondello wouldn’t say how quickly that disengagement would occur, but his remarks suggest this is something Jabil is clearly looking to resolve fairly soon.

 

I am amazed at how fast this ship is going down. Looks like all confidence is gone in BBBY remaining a going concern. Hard to see how anyone can 'value' the business right now.   

[A_Hamilton]

Looks like Google is going to try to scoop up ex-BBRY employees for Motorola.

 

Google’s Motorola establishing a new office in Kitchener-Waterloo

Maybe BBRY can sell them their offices.

[fareastwarriors]

BlackBerry's Heins, Fairfax's Watsa and the $55 million handshake

 

http://www.reuters.com/article/2013/09/26/us-blackberry-offer-compensation-idUSBRE98P1EA20130926

[rkbabang]

BlackBerry's Heins, Fairfax's Watsa and the $55 million handshake

 

http://www.reuters.com/article/2013/09/26/us-blackberry-offer-compensation-idUSBRE98P1EA20130926

 

The article is implying (in so many words) that maybe PW deliberately gave Heins every intensive to run the company into the ground so that he could buy it cheap and everything has gone exactly according to PW's master plan.  That's a little too conspiracy-theory-ish for me.

[Guest wellmont]

doesn't make a lot of sense considering he is not buying any more of it.

[oldye]

Sounds to me like some stupid writers are  looking to stir up controversy, the decision to go w/ bb10 vs android was made well before Prem got there.  The decisions to delay the release where technical in nature, they did not want to release another playbook.  They can't even launch an app on time let alone an OS, how Prem could have anything do with their horrible execution is beyond me.   

 

To suggest that he was purposefully creating a 10 foot hurdle for himself so that he can control the company is just dumb.