BB - BlackBerry

[txlaw]

I'm skeptical that an investment process which buys struggling companies like BBRY, DELL, CLWR, SHLD, SD, and CHK somehow always manages to bottom tick them and has a 100% batting record on those companies.

 

Not sure what you mean by bottom ticking, but I never said that I invest solely in those types of situations, did I?  Nor did I say what percentage of my portfolio gets allocated to those types of companies.  As was implied in my post, I tend to have a greater percentage of my portfolio allocated to the "surer" bets.

 

And nobody has a 100% batting record.

 

Also, you can't lump all those situations into one basket.  DELL is quite different than BBRY, and CHK is quite different than SD, despite their being in the same sector. 

 

Edit:  And SHLD is something entirely different than most of the "struggling companies" out there as well.

[nnayyar]

According to analysts, BlackBerry's assets include a shrinking yet well-regarded services business that powers its security-focused messaging system, worth $3 billion to $4.5 billion; a collection of patents that could be worth $2 billion to $3 billion; and $3.1 billion in cash and investments.

 

Okay, that's like close to 20 bucks.

 

those numbers are wrong.

 

wellmont or any others, does anyone have a good grasp on what those patents might be worth? I just started reading up on this situation but it seems like those are the only tangible valuation increase other then trying a risky turnaround or alternative to core business strategy? I seem to recall GOOG purchasing MMI for pretty much the patents alone..

[nnayyar]

I'm not sure this was mentioned in the thread:

 

http://m.theglobeandmail.com/report-on-business/blackberry-buyout-could-get-boost-with-500-million-tax-refund/article14693279/?service=mobile#!/

 

Extra 500MM in tax refunds.

[Alekbaylee]

I'm not sure this was mentioned in the thread:

 

http://m.theglobeandmail.com/report-on-business/blackberry-buyout-could-get-boost-with-500-million-tax-refund/article14693279/?service=mobile#!/

 

Extra 500MM in tax refunds.

 

And that too...

http://www.theglobeandmail.com/report-on-business/blackberry-in-sale-talks-with-cisco-google-sap-sources/article14713669/

[Cardboard]

I kind of like the way that Blackberry was walked down by the stock market or a message that was repeated quite a few times here by some posters: "Everybody has looked at it for 2 years. No one else will bid. Fairfax will be able to drop its bid."

 

Here we now have Cerberus, Cisco, Google, Intel, SAP, LG, Samsung and I am sure the founder looking at bids with or against Fairfax for the whole thing and various pieces of the business. Then who else that we don't know about? Apple, Microsoft, HTC...

 

That is a lot of people looking at a supposedly dead and rotting carcass.

 

Cardboard

[vinod1]

That seems like a rephrasing of Buffett's style.  Stick with predictable businesses and you'll get fewer negative surprises.  Although this boils down to the most basic of fortune cookie wisdom -- "predict what is predictable and you will be richly rewarded".

 

It is. Type #1 companies are essentially those that have some moat.

 

Vinod

[vinod1]

I do make a distinction between AIG/BAC and some of the others mentioned.  But it's less to do with throwing them into buckets of increasing IV, maintaining IV, and decreasing IV than with assessing the moat surrounding, or longevity of, the business (which tends to imply a floor on IV), and the discount to IV based on market price. 

 

The reason why I personally wouldn't use "IV rate of change" buckets is because whether a company fits into a bucket can change based on a number of variables.  A lot of financial companies steadily increased their IV per share until the IV per share got completely destroyed in the financial crisis.  BBRY had a huge increase in IV and then a pretty drastic decrease in IV.  Of course, it's debatable whether IV is a moving target or whether there is one true IV.  I'm of the school that defines IV as a range assessment based on the information currently available, which means that I always consider IV a moving target. 

 

So the reason why I would generally put more money into AIG/BAC is because I view them as quasi-public utilities.  They provide commodity products that we will need for the foreseeable future, so the expected IV range is more easily assessable than, say, a tech company.  And the discount to the floor on that IV range is still very high.  However, if I have a cigar butt that is trading at $0.05 on the dollar, and I think that even with value burn, I'm going to recover $0.5 on the dollar, I might a put a substantial amount into that.  Especially if there's a catalyst involved. 

 

I guess it's a matter of style.  I definitely will tend to put more money into the "surer" things, but not always.  I strongly believe that there's more than one way to skin a cat, as they say.

 

Regarding CHK or SD, I'm not sure that it makes sense to put an O&G firm into your second bucket.  Let's just say that PV-10 is an approximation of IV (more of a DCF-based IV versus an earnings capitalization-based IV).  Well, as exploration activities continue, the PV-10 hopefully increases, even if the commodity price remains fixed over the long term at the cost of production.  Of course, to sustain an increase in IV, the O&G firm must obtain additional inventory that will yield energy in a way that is profitable.  An XOM has so much scale, expertise, influence, and cash that they are essentially a merchant bank that should always be able to find inventory that they can monetize for a profit, which makes it closer to a BofA than an SD.  Which means you can take their growing earnings and put a cap rate on it.  CHK, IMO, is becoming more like XOM, so I view them a bit differently than SD.

 

That was a bit of a rambling answer, but the short of it is that I will trade some certainty on IV range away for potentially higher payoff, but I do tend to concentrate more in the "surer" bets, particularly because I am always investing as an OPMI.  But to each his own, I say.

 

Thanks for the explanation. I get what you are saying.

 

Just to clarify, as I replied above to Eric, by type 1 companies I essentially mean those that have a moat. It might be obvious but these companies seem to have a quicker and easier turnaround and it is a much more straightforward bet to make. 

 

Vinod

[Guest valueInv]

I was wondering why this hadn't happened:

 

http://mobile.bloomberg.com/news/2013-10-04/blackberry-faces-investor-s-securities-lawsuit-in-n-y-.html?cmpid=yhoo

[Sunrider]

Folks - quick question

 

I get the impression that everyone here (especially the long-timers) think of Prem very highly and as a man of his word in ethical terms. If that is so, the $9 bid can be considered secure (i.e. financing in place) and given his previous role on the Board, it would be very strange if the DD turned up anything untoward that would yield a drop in price.

 

Why then, does the Market price this at 7.90 per share?

 

How do you rate Prem wrt the liklihood of this bid going through? Did he make it just to flush out more interest? If you believe in his integrity then a bull call spread Jan 14 8 - 9 can be had for 0.5, which would be a double when the transaction completes (or in Jan 14) ...

 

Cheers - C.

 

 

[Kraven]

Folks - quick question

 

I get the impression that everyone here (especially the long-timers) think of Prem very highly and as a man of his word in ethical terms. If that is so, the $9 bid can be considered secure (i.e. financing in place) and given his previous role on the Board, it would be very strange if the DD turned up anything untoward that would yield a drop in price.

 

Why then, does the Market price this at 7.90 per share?

 

How do you rate Prem wrt the liklihood of this bid going through? Did he make it just to flush out more interest? If you believe in his integrity then a bull call spread Jan 14 8 - 9 can be had for 0.5, which would be a double when the transaction completes (or in Jan 14) ...

 

Cheers - C.

 

I have no idea whether Fairfax will or won't go through with the transaction, but did have a couple of thoughts on your post.  I don't think that whether or not Prem goes through with this that it has anything to do with his ethics or whether he is a man of his word.  The two shouldn't be confused.  This is a standard and straightforward business dealing.  Fairfax signed a letter of intent to acquire Blackberry.  The LOI is subject to due diligence, etc.  Translation is it that it's one step above meaningless from the standpoint of obligating one to move forward.  There is nothing wrong with that and it's smart business to do so if the situation arises.

 

Now, Prem may have other reasons to want to move forward and others have presented those.  However, whether or not he does has nothing to do with ethics or promises or breaking one's word.  So long as they abide by the terms of the LOI (not hard to do), there shouldn't be any issue with what they do in this regard. 

[Sunrider]

Ah - I guess I should've phrased this more carefully - I don't mean this in the "keep one's word sense" - I understand very well that this is a business dealing. What I was getting at was whether, like Buffet, the people here expect him to only put forward such an offer if he knows that it is highly likely that he will go through with it (of course subject to DD, etc.) ... i.e. that it won't step away because all of a sudden he doesn't get funding, etc.

 

Cheers - C.

 

Folks - quick question

 

I get the impression that everyone here (especially the long-timers) think of Prem very highly and as a man of his word in ethical terms. If that is so, the $9 bid can be considered secure (i.e. financing in place) and given his previous role on the Board, it would be very strange if the DD turned up anything untoward that would yield a drop in price.

 

Why then, does the Market price this at 7.90 per share?

 

How do you rate Prem wrt the liklihood of this bid going through? Did he make it just to flush out more interest? If you believe in his integrity then a bull call spread Jan 14 8 - 9 can be had for 0.5, which would be a double when the transaction completes (or in Jan 14) ...

 

Cheers - C.

 

 

I have no idea whether Fairfax will or won't go through with the transaction, but did have a couple of thoughts on your post.  I don't think that whether or not Prem goes through with this that it has anything to do with his ethics or whether he is a man of his word.  The two shouldn't be confused.  This is a standard and straightforward business dealing.  Fairfax signed a letter of intent to acquire Blackberry.  The LOI is subject to due diligence, etc.  Translation is it that it's one step above meaningless from the standpoint of obligating one to move forward.  There is nothing wrong with that and it's smart business to do so if the situation arises.

 

Now, Prem may have other reasons to want to move forward and others have presented those.  However, whether or not he does has nothing to do with ethics or promises or breaking one's word.  So long as they abide by the terms of the LOI (not hard to do), there shouldn't be any issue with what they do in this regard.

[T-bone1]

Folks - quick question

 

I get the impression that everyone here (especially the long-timers) think of Prem very highly and as a man of his word in ethical terms. If that is so, the $9 bid can be considered secure (i.e. financing in place) and given his previous role on the Board, it would be very strange if the DD turned up anything untoward that would yield a drop in price.

 

Why then, does the Market price this at 7.90 per share?

 

How do you rate Prem wrt the liklihood of this bid going through? Did he make it just to flush out more interest? If you believe in his integrity then a bull call spread Jan 14 8 - 9 can be had for 0.5, which would be a double when the transaction completes (or in Jan 14) ...

 

Cheers - C.

 

I have no idea whether Fairfax will or won't go through with the transaction, but did have a couple of thoughts on your post.  I don't think that whether or not Prem goes through with this that it has anything to do with his ethics or whether he is a man of his word.  The two shouldn't be confused.  This is a standard and straightforward business dealing.  Fairfax signed a letter of intent to acquire Blackberry.  The LOI is subject to due diligence, etc.  Translation is it that it's one step above meaningless from the standpoint of obligating one to move forward.  There is nothing wrong with that and it's smart business to do so if the situation arises.

 

Now, Prem may have other reasons to want to move forward and others have presented those.  However, whether or not he does has nothing to do with ethics or promises or breaking one's word.  So long as they abide by the terms of the LOI (not hard to do), there shouldn't be any issue with what they do in this regard.

 

I think there is an overlap between the strict legal obligation to close the deal (there is none) and more subjective reasons like "Prem will keep his word". 

 

Prem wants to spend the next 30 years acquiring good businesses at good prices.  In order to be a dependable "buyer of last resort", your word is important.  No one would show Buffett some of the deals he sees if they thought he might turn around an use the information as leverage for a lower price or take a free option on buying the business.  Prem sticking to his word here - and his very public statements that he would do so - are important for the future business prospects for Fairfax, in my opinion.

[Kraven]

Folks - quick question

 

I get the impression that everyone here (especially the long-timers) think of Prem very highly and as a man of his word in ethical terms. If that is so, the $9 bid can be considered secure (i.e. financing in place) and given his previous role on the Board, it would be very strange if the DD turned up anything untoward that would yield a drop in price.

 

Why then, does the Market price this at 7.90 per share?

 

How do you rate Prem wrt the liklihood of this bid going through? Did he make it just to flush out more interest? If you believe in his integrity then a bull call spread Jan 14 8 - 9 can be had for 0.5, which would be a double when the transaction completes (or in Jan 14) ...

 

Cheers - C.

 

I have no idea whether Fairfax will or won't go through with the transaction, but did have a couple of thoughts on your post.  I don't think that whether or not Prem goes through with this that it has anything to do with his ethics or whether he is a man of his word.  The two shouldn't be confused.  This is a standard and straightforward business dealing.  Fairfax signed a letter of intent to acquire Blackberry.  The LOI is subject to due diligence, etc.  Translation is it that it's one step above meaningless from the standpoint of obligating one to move forward.  There is nothing wrong with that and it's smart business to do so if the situation arises.

 

Now, Prem may have other reasons to want to move forward and others have presented those.  However, whether or not he does has nothing to do with ethics or promises or breaking one's word.  So long as they abide by the terms of the LOI (not hard to do), there shouldn't be any issue with what they do in this regard.

 

I think there is an overlap between the strict legal obligation to close the deal (there is none) and more subjective reasons like "Prem will keep his word". 

 

Prem wants to spend the next 30 years acquiring good businesses at good prices.  In order to be a dependable "buyer of last resort", your word is important.  No one would show Buffett some of the deals he sees if they thought he might turn around an use the information as leverage for a lower price or take a free option on buying the business.  Prem sticking to his word here - and his very public statements that he would do so - are important for the future business prospects for Fairfax, in my opinion.

 

You make fair points and I don't disagree.  I had mentioned there are reasons for him going forward that aren't legally driven.  However, where I would disagree is that somehow Prem has promised something here and that by not acquiring the company he wouldn't be sticking to his word.  I mean what's an LOI anyway?  It says I want to acquire your company if x, y and z conditions are fulfilled.  If x, y and z aren't satisfied then one can walk away.  I would not equate the "offer" here with what is essentially buying "as is" without any pre-conditions. 

 

I would also distinguish this situation from what Buffett does.  I don't recall Buffett operating in this manner (utilizing an LOI publicly, etc).  Not everyone is Buffett.  In the real (non-Buffett) world sometimes a few things need to be thrown against the wall to see what sticks.  Personally I don't see why if he walked away it would be embarrassing or would cause friction in any future deals, but I don't pretend to know how that would play out. 

 

Edit:  I would add that I'm speaking from the standpoint of the LOI and such.  If Prem has publicly come out and said he will go forward with this no matter what (I don't know if that's true, but seems to be what people are saying), then that's a different story and while I wouldn't think it legally obligates him, there could be many reasons for wanting to keep his word in that instance. 

[tengen]

For all you Blackberry watchers, just saw a brief news item on globeinvestor.com (paywall) reporting a "liquidation value" at 7.59 USD / share. The valuation comes from an analyst (Neeraj Monga) at Veritas Investment Research Corp. The same analyst writes:

 

if a buyer were to keep BlackBerry running as a going concern for two years, the revenue derived would equate to $2.29 a share.

 

And another quote:

 

If a buyer paid $7.50 a share for BlackBerry and ran the business for service division revenue for two years, and then sold for $10 a share, that buyer would realize a return of 33 per cent, according to the Veritas note.

 

Mr. Monga said Prem Watsa, who leads Fairfax, would likely oppose any move by the insurance and investment firm to lower its $9 bid and Mr. Watsa “would be extremely against withdrawing an offer entirely.”

[T-bone1]

Here is the Prem quote, made after the stock dropped and market seemed to doubt his offer was legitimate:

 

"We've got a track record of 28 years of completing what we've done. We've never renegotiated. We thought long and hard before we offered $9 dollars a share and we're not in the business of offering a number and at the last minute changing the figure. Over 28 years our reputation is stellar on that front. We just don't do that."

 

I am not saying this is a guarantee that he will close the deal, but given what we know about Prem, I think there is a 75-80% chance he will close the deal at $9 (as long as there are no extraneous factors that prevent it).

 

Prem & Co have likely been working on this for at least two months (when he left the board citing conflicts of interest) so I really think they are willing to pay $9 and aren't going to find bad surprises during (further) due dilligence.

 

Personally, I wouldn't be surprised to see Fairfax put up $2 billion in debt financing for the deal (along with rolling their current stake into equity).

[fareastwarriors]

http://www.bloomberg.com/news/2013-10-08/blackberry-faces-break-up-in-bizarre-sale-fund-says.html

 

BlackBerry Faces Break Up in ‘Bizarre’ Sale, Fund Says

[fareastwarriors]

http://www.bloomberg.com/news/2013-10-09/blackberry-is-said-to-warn-to-idea-of-a-breakup.html

 

BlackBerry Is Said to Warm to Idea of a Breakup

[alertmeipp]

The market still questions Prem's ability to put the deal together. Too bad.

[txlaw]

The market still questions Prem's ability to put the deal together. Too bad.

 

I've been keeping my mouth shut on BBRY lately (since we're at the end game, might as well just wait and see what happens), but I would agree with you on the market's assessment of PW. 

 

I would tend to give PW the benefit of the doubt in his ability to put a deal together.  But he's an unknown to most folks other than the guys who were going after him in the past, so that may be why there is a disbelief in the ability to put together a deal.

[VersaillesinNY]

Lazaridis increased his ownership to 8% and considers a bid to buy the rest of the company:

 

http://finance.yahoo.com/news/blackberry-co-founder-considers-bid-182406523.html

 

http://www.sec.gov/Archives/edgar/data/1070235/000119312513396388/d610704dsc13d.htm

[fareastwarriors]

http://www.cnbc.com/id/101122181

 

Lenovo flirts with snapping up BlackBerry

[rpadebet]

So now they have NDA's with Cerebrus and Lenovo. Given PW's offer and interest by the founders Lazardis, CISCO,SAP,GOOG consortium, at some point there should be no value for the NDA ;) . What are you agreeing not to disclose and to whom? Anyone with any interest to know can just sign an NDA directly.

 

It is interesting nevertheless as it feels like a season of the Bachelor. Of course the twist is, our Bachelor here would die if someone doesn't marry him soon.

[SharperDingaan]

Just because there are NDA's does not mean that you get competing bids. It usually means that there will be just one bid for the assets, & then a parcelling out amongst the 'competition'; either via asset sale or licencing agreement. No bidding war, & the bidder gets to do the deal with less financing.

 

SD

[rpadebet]

Just because there are NDA's does not mean that you get competing bids. It usually means that there will be just one bid for the assets, & then a parcelling out amongst the 'competition'; either via asset sale or licencing agreement. No bidding war, & the bidder gets to do the deal with less financing.

 

SD

 

So you think that PW's bid is the only bid and that he buys the entire company to sell pieces to these other parties? And is that why he didn't line up financing before making the bid?

[SharperDingaan]

The price for any asset will be lower if the bidders agree amongst themselves; they all have the same information.

All bidders will be gaming the go/no go decision; but only HW gets the break up fee.

The bidder who takes everything, will probably win.

 

The business decision points to spreading the transaction risk over partners, but leaves the funding decision open. It could be funded by short-term debt repaid from asset sales, securitized debt backed by signed licensing agreements, private placement, or a direct investment by the bidder. Some of the FFH companies themselves may also well be on the buy side of the potential debt placements.

 

Financing is no big deal; getting the various required agreements agreed & signed off on is. The bitching is because every $ not funded by debt reduces the fees paid to the I-Banking community, & this is probably one of the few remaining big deals before the year closes. Jobs & bonuses on the line.

 

SD