BB - BlackBerry

[Guest wellmont]

I expect bbry will now have to make some extremely difficult decisions that they have been Avoiding making because they were too awful to even contemplate. Obviously, FFH now believes the company is going to burn lots and lots of cash before they start making any money for shareholders. bbry is going to exit the bb10 device business once and for all.

 

Why don't they:

 

1. Stop operating

2. Return all cash on hand to shareholders

3. Auction BBM and return cash to shareholders

4. Auction patents and return cash to shareholders

5. Auction subscriber contracts and network and return cash to shareholders

6. Auction QNX and return cash to shareholders

 

Shouldn't the above easily exceed $9?

 

it's not as simple as that. no. many smart people just did the exact exercise you did and could not "get there". the assets are not worth what they thought. this is why the stock is now $6 and change.

[gary17]

so finally they seem to have found a competent guy  John S. Chen

 

http://en.wikipedia.org/wiki/John_S._Chen

 

he also served on the BOD of Wells Fargo & Disney -    why not make him the ceo?

[wachtwoord]

I expect bbry will now have to make some extremely difficult decisions that they have been Avoiding making because they were too awful to even contemplate. Obviously, FFH now believes the company is going to burn lots and lots of cash before they start making any money for shareholders. bbry is going to exit the bb10 device business once and for all.

 

Why don't they:

 

1. Stop operating

2. Return all cash on hand to shareholders

3. Auction BBM and return cash to shareholders

4. Auction patents and return cash to shareholders

5. Auction subscriber contracts and network and return cash to shareholders

6. Auction QNX and return cash to shareholders

 

Shouldn't the above easily exceed $9?

 

it's not as simple as that. no. many smart people just did the exact exercise you did and could not "get there". the assets are not worth what they thought. this is why the stock is now $6 and change.

 

That are just people making estimates. I mean just do it. Announce the auction and do it, close shop and do it.

[Ballinvarosig Investors]

Chen has a terrific CV it has to be said.

[tng]

The convertible debt investment is okay, because BBRY has zero debt on the balance sheet and I'm pretty sure that there will be tons of buyers at $1B just for the patents alone. So there are plenty of assets to cover the debt. However, this is a very bad deal for existing shareholders because the endgame is starting to look and more and more like a binary outcome: either BBRY successfully makes some type of turnaround/sale or it just runs itself into the ground. The new convertible debt steals a large percentage of the possible upside, and it is well covered (at the expense of equity holders) in the downside.

 

What is more disturbing is that BBRY needed this financing. That may give an indication of how much things have deteriorated since the last quarter.

[txlaw]

Let's clear something up about this development. 

 

A convertible placement at a price of $10 per share and 6% interest means that these guys -- FFH included, as they are putting in new money -- think the company is worth that in break-up (or close to that).  Of course, they also get seniority for their new money in case of BK.  But as has been pointed out, FFH is increasing their exposure.

 

So this development does not all of a sudden change what one thinks break up value is in terms of the assets that BBRY has, except insofar that further delay means further deterioration of asset value.  The November 4 deadline was one imposed by FFH and was a stupid deadline at that, given FFH's apparent inability to line up financing.

 

I have always maintained that break-up value is the right way to assess BBRY and that FFH involvement on the board would keep BBRY from destroying value.  Man, was I wrong about that.  Ironically, we are in even more of a "distressed" situation as a result of FFH and BBRY management's decisions! 

 

Any potential bidders have to be lining up fire sale bids to take advantage.  Even a foreign company like Lenovo who would potentially bid on the entire company will now be as opportunistic as they can possibly be, so one shouldn't expect to squeeze out much more than that $10 valuation.  And even that is debatable.

[txlaw]

On top of the lousy 6%, I cannot believe the convertible is at $10! Why not at Friday's closign price?!?

 

Tks,

S

 

What an infuriating situation this is as a Fairfax shareholder. They could only raise $1b of the $4.7b? And moreover $250mm of this is coming from Fairfax despite Prem saying he would not contribute additional capital!? At 6 lousy percent!

 

Write BBRY to zero, write the debenture to zero, and Fairfax BVPS is $313 with a highly damaged reputation (irreparable?). So much damage inflicted by one investment.

 

Good luck Mr Chen.

 

Reputational harm. 

 

FFH really effed up on this one with their bid.  Apparently, they were nowhere near to lining up partners for a real bid.  And that has actually made things worse for BBRY.

 

If FFH put in the convertible at $7, which would obviously be opportunistic, then forget all comparisons to BRK.  They've already lost a lot of people on this one, and they don't want to destroy their reputation overnight. 

[Guest wellmont]

with all due respect you couldn't be more wrong. just because it converts at $10 doesn't mean the buyers of the debt think it's worth $10. in fact most of the buyers of the bond will be convertible arbitrage funds who are now shorting the stock to lock in a guaranteed profit. So they are agnostic. It's simply a vehicle they can work their strategy on. That's one reason the stock is down. They just ran an auction for the company (which has been for sale for two years now). And nobody wanted it or could raise money to buy the stock at $9 or anything close to $9.

 

FFH is buying a senior security. Because they didn't want to put in more equity capital. That was stated from the beginning. The reason why they are doing this as a convert is because the conv arb hedge funds will get the deal done.

 

You are also wrong (and have been) about them saving bb10 imo. it's toast. and will be shut down. Current CEO leaving is a signal for that outcome. I don't believe that there is room for a bbry android or windows device. The show now is being orchestrated by PW. And he is going to run an orderly liquidation, which isn't going to be easy to do in a technology company headed due south.

[tng]

I expect bbry will now have to make some extremely difficult decisions that they have been Avoiding making because they were too awful to even contemplate. Obviously, FFH now believes the company is going to burn lots and lots of cash before they start making any money for shareholders. bbry is going to exit the bb10 device business once and for all.

 

Why don't they:

 

1. Stop operating

2. Return all cash on hand to shareholders

3. Auction BBM and return cash to shareholders

4. Auction patents and return cash to shareholders

5. Auction subscriber contracts and network and return cash to shareholders

6. Auction QNX and return cash to shareholders

 

Shouldn't the above easily exceed $9?

 

Incumbent management, especially in tech companies, will always prefer to throw the hail mary instead. The best thing for shareholders for quite a while now was to simply stop operating and sell off all the pieces. But that means management will lose their jobs. They are effectively firing themselves, and who would do that? An outside activist can force the change, but the risk/reward hasn't been right yet. It is hard to price the value of the non-cash assets (the patents, etc). It would be easier if they were already licensing a lot of the stuff to other phone-makers already, and you can see the cash flow, but if you take over Blackberry then you have to talk to Google, Samsung, Apple, etc and try to see if you can sell the patents to them. There are not many players in that market, you pretty much need two of them to engage in a bidding war before you are sure you can get a good price. There is a lot of work to do to liquidate the company and there is a lot of risk involved, so not many people are willing to come in at $8-9 and then try to split everything up to get $10. They need a more certain return or a higher return before they will try to do it.

[wknecht]

with all due respect you couldn't be more wrong. just because it converts at $10 doesn't mean the buyers of the debt think it's worth $10. in fact most of the buyers of the bond will be convertible arbitrage funds who are now shorting the stock to lock in a guaranteed profit. So they are agnostic. It's simply a vehicle they can work their strategy on. That's one reason the stock is down.

 

FFH is buying a senior security. Because they didn't want to put in more equity capital. That was stated from the beginning. The reason why they are doing this as a convert is because the conv arb hedge funds will get the deal done.

 

You are also wrong (and have been) about them saving bb10 imo. it's toast. and will be shut down. Current CEO leaving is a signal for that outcome. I don't believe that there is room for a bbry android or windows device. The show now is being orchestrated by PW. And he is going to run an orderly liquidation, which isn't going to be easy to do in a technology company headed due south.

I'm somewhat new to the Blackberry scene as I had misguided faith - can you explain what you mean by orderly liquidation? They're injecting capital not pulling it out. I thought they had a lot of cash, are they burning it that quickly that they would need to raise capital to liquidate?

 

John Chen does not seem like a liquidator, so not sure why they would bring him in. Would be interested to see the comp arrangement Prem is setting up for him.

[rjstc]

Looks like instead of hedging against a market collapse PW should have hedged this position. Not confidence builders.

[Guest wellmont]

I'm somewhat new to the Blackberry scene as I had misguided faith - can you explain what you mean by orderly liquidation? They're injecting capital not pulling it out. I thought they had a lot of cash, are they burning it that quickly that they would need to raise capital to liquidate?

 

John Chen does not seem like a liquidator, so not sure why they would bring him in. Would be interested to see the comp arrangement Prem is setting up for him.

 

John Chen is a CEO who is going to do what PW tells him to do.

 

They are injecting cash because the company is going to do a Massive restructuring, that will likely involve exiting the device business entirely. So they need cash to fortify the balance sheet and engender confidence in the remaining customers (which are fewer and fewer). The company is no longer an operating company because as structured, it does not make money. bbry lost. android apple and msft won. Every month it operates, it destroys shareholder value. There may be a real money making business somewhere buried in there, but they will have to "find" it. They are burning cash now, and will continue to burn cash as the liquidation unfolds.

[txlaw]

with all due respect you couldn't be more wrong. just because it converts at $10 doesn't mean the buyers of the debt think it's worth $10. in fact most of the buyers of the bond will be convertible arbitrage funds who are now shorting the stock to lock in a guaranteed profit. So they are agnostic. It's simply a vehicle they can work their strategy on. That's one reason the stock is down.

 

FFH is buying a senior security. Because they didn't want to put in more equity capital. That was stated from the beginning. The reason why they are doing this as a convert is because the conv arb hedge funds will get the deal done.

 

You are also wrong (and have been) about them saving bb10 imo. it's toast. and will be shut down. Current CEO leaving is a signal for that outcome. I don't believe that there is room for a bbry android or windows device. The show now is being orchestrated by PW. And he is going to run an orderly liquidation, which isn't going to be easy to do in a technology company headed due south.

 

I think we agree on the orderly liquidation part.  That is break up, which I contend has to occur now in the short to medium term, despite the press release.

 

And your point about most of the buyers of the bond being convertible arbitrage funds is a good one -- that could very well be the case.  But FFH didn't simply go with that type of security because they didn't want to put in more equity themselves.  If they could have raised $1 billion in equity, with them taking $250 million, they would have done it, but as you say, there may have been no takers other than FFH on that front.  So not only could they not raise enough capital to do an entire bid, but they probably couldn't get anyone to come in for a cash infusion who wouldn't take a senior security. 

 

However, it is notable that they went with convertible debt, rather than than a loan secured by, say, the patent portfolio.  Doesn't that indicate that the pricing is not simply unrelated to break up value?  I ask that not as a rhetorical question, but to get input from CoBF on this.

 

With regards to BB10, how can they shut it down?  They have to support it.  They might not do any more work on it, but when you have governments and corporations who have bought those devices, you can't just shut it down.  If you mean stop selling and developing new devices, then I agree. 

[rkbabang]

Looks like instead of hedging against a market collapse PW should have hedged this position. Not confidence builders.

 

This position shouldn't have been hedged it should not have been taken.  This has been completely and utterly baffling to me from day one.  When it was trading at $40/share it was clear to anyone who follows this industry that if RIM didn't do something major (and quickly) it was doomed.  Yet it was also clear that RIM's management had its heads buried firmly in the sand.  And Prem kept averaging down as RIM's management did nothing and the company died a slow and painful death.  It has been difficult to watch and still is.  Stop throwing good money in after bad, let the company die, take your losses, and try not to make the same mistakes again.  It's like the nightmare that never ends.

 

[mcliu]

From BBRY's perspective, why raise more money at this point?

I mean they have $2B+ in the bank..

[Guest wellmont]

tx, Perhaps you missed this part. FFH did not want to put more equity money in. None. Zip. Squat. That's one reason why the deal probably failed. He sponsored this deal but wasn't going to risk another dime on the equity? interesting no? So no he would not put more equity money in.

 

Pricing of convertible securities is not based on "break up" value. go back to 1999 and look at how many convertibles were done at massive premiums to break up value. Converts are done opportunistically, when market conditions are favorable, and when equity is OVER-valued.

 

He is buying senior paper so that if it goes due south, as it is headed, he will have first claim on the assets in a ch 11 filing. The reason they went with convertible debt is to get the deal done by hedge funds who are agnostic about the future of bbry. They didn't do a convert because they see some kind of value at the end of the rainbow. The buyers of the senior paper get a "kicker" to give them inventive to invest. 6% straight debt is JUNK. So this is beyond junk debt as it includes "upside".

 

as for bb10 it either is moving ahead or it is moving behind. you can't just maintain it. That won't work. Customers will leave it if looks to be not as compelling as alternatives.  bb10 lost to google apple and msft. it may have some residual value as a RTOS. but those aren't worth much. the customers who run it now are looking to recover from that mistake they made in choosing a losing platform. tx this happens all the time in technology businesses. platforms emerge and decay. They disappear and bb10 is going to be one of them. it's the "nature" of things.

 

I really think you need to abandon your thesis that these assets have value. They do not. They just ran an auction where many many parties looked at these assets and nobody wanted them. PW did not even want them. Pw is stuck. He is buried. He is now in salvation mode. This is the best plan he could come up with after all his other plans failed. Please abandon the notion that there is some kind of mysterious hidden value in these assets that only you know about. They aren't there.

[wachtwoord]

From BBRY's perspective, why raise more money at this point?

I mean they have $2B+ in the bank..

 

A large leveraged dividend of $10+ and then file for bk? :P

[plato1976]

LOL, so what should all the BBRY arb guys do now ?

I feel shameful to admit that I bought a tiny position of BBRY at $8 and now trapped in :) lol...

 

 

From BBRY's perspective, why raise more money at this point?

I mean they have $2B+ in the bank..

 

A large leveraged dividend of $10+ and then file for bk? :P

[gary17]

i don't think it's as simple as FFH getting out and appointing Chen to clean up the mess - they want to make BB a niche player - a company that only does secure communication via one or may be two handsets and BBM and their network, while selling the rest.  that's my best guess.

 

we need to remember that there are also other large shareholders of BB and their interest/ vision may be different.

 

tx, Perhaps you missed this part. FFH did not want to put more equity money in. None. Zip. Squat. That's one reason why the deal probably failed. He sponsored this deal but wasn't going to risk another dime on the equity? interesting no? So no he would not put more equity money in.

 

He is buying senior paper so that if it goes due south, as it is headed, he will have first claim on the assets in a ch 11 filing. The reason they went with convertible debt is to get the deal done by hedge funds who are agnostic about the future of bbry. They didn't do a convert because they see some kind of value at the end of the rainbow. The buyers of the senior paper get a "kicker" to give them inventive to invest. 6% straight debt is JUNK. So this is beyond junk debt as it includes "upside".

 

as for bb10 it either is moving ahead or it is moving behind. you can't just maintain it. That won't work. Customers will leave it if looks to be not as compelling as alternatives.  bb10 lost to google apple and msft. it may have some residual value as a RTOS. but those aren't worth much. the customers who run it now are looking to recover from that mistake they made in choosing a losing platform. tx this happens all the time in technology businesses. platforms emerge and decay. They disappear and bb10 is going to be one of them. it's the "nature" of things.

 

I really think you need to abandon your thesis that these assets have value. They do not. They just ran an auction where many many parties looked at these assets and nobody wanted them. PW did not even want them. Pw is stuck. He is buried. He is now in salvation mode. This is the best plan he could come up with after all his other plans failed. Please abandon the notion that there is some kind of mysterious hidden value in these assets that only you know about. They aren't there.

[gary17]

I'm looking at Jan 15 options  8)

 

LOL, so what should all the BBRY arb guys do now ?

I feel shameful to admit that I bought a tiny position of BBRY at $8 and now trapped in :) lol...

 

 

From BBRY's perspective, why raise more money at this point?

I mean they have $2B+ in the bank..

 

A large leveraged dividend of $10+ and then file for bk? :P

[rjstc]

Looks like instead of hedging against a market collapse PW should have hedged this position. Not confidence builders.

 

This position shouldn't have been hedged it should not have been taken.  This has been completely and utterly baffling to me from day one.  When it was trading at $40/share it was clear to anyone who follows this industry that if RIM didn't do something major (and quickly) it was doomed.  Yet it was also clear that RIM's management had its heads buried firmly in the sand.  And Prem kept averaging down as RIM's management did nothing and the company died a slow and painful death.  It has been difficult to watch and still is.  Stop throwing good money in after bad, let the company die, take your losses, and try not to make the same mistakes again.  It's like the nightmare that never ends.

 

I was being facetious. Sometimes when someone becomes mentally entrenched in their thinking. Especially after having past success they become very stubborn. I'm sure PM will at some point start doing well again. But it's very frustrating for investors in the meantime. I have no position in FFH or BBRY.

[ourkid8]

http://finance.yahoo.com/news/blackberry-says-no-plans-shut-162832056.html

 

(Reuters) - BlackBerry Ltd has no plans to shut down its loss-making handset business, said its incoming interim Chief Executive John Chen on Monday, adding that the smartphone maker has enough in its stable to stage a turnaround.

 

"I know we have enough ingredients to build a long-term sustainable business," said Chen in a telephone interview with Reuters on Monday. "I have done this before and seen the same movie before."

 

Chen, who is replacing Thorsten Heins, said he plans to make changes in the company's executive team, bringing in new faces from outside and promoting some people within the company too.

 

 

[ourkid8]

How about damage to their own shareholder base?  At least with a convertable at $7 or a much higher interest rate (10-12%) would have made it a bit easier to swallow...

 

Tks,

S

 

On top of the lousy 6%, I cannot believe the convertible is at $10! Why not at Friday's closign price?!?

 

Tks,

S

 

What an infuriating situation this is as a Fairfax shareholder. They could only raise $1b of the $4.7b? And moreover $250mm of this is coming from Fairfax despite Prem saying he would not contribute additional capital!? At 6 lousy percent!

 

Write BBRY to zero, write the debenture to zero, and Fairfax BVPS is $313 with a highly damaged reputation (irreparable?). So much damage inflicted by one investment.

 

Good luck Mr Chen.

 

Reputational harm. 

 

FFH really effed up on this one with their bid.  Apparently, they were nowhere near to lining up partners for a real bid.  And that has actually made things worse for BBRY.

 

If FFH put in the convertible at $7, which would obviously be opportunistic, then forget all comparisons to BRK.  They've already lost a lot of people on this one, and they don't want to destroy their reputation overnight.

[Grenville]

Interesting day seeing all of this with the SAC plea.

[wachtwoord]

How about damage to their own shareholder base?  At least with a convertable at $7 or a much higher interest rate (10-12%) would have made it a bit easier to swallow...

 

Tks,

S

 

On top of the lousy 6%, I cannot believe the convertible is at $10! Why not at Friday's closign price?!?

 

Tks,

S

 

What an infuriating situation this is as a Fairfax shareholder. They could only raise $1b of the $4.7b? And moreover $250mm of this is coming from Fairfax despite Prem saying he would not contribute additional capital!? At 6 lousy percent!

 

Write BBRY to zero, write the debenture to zero, and Fairfax BVPS is $313 with a highly damaged reputation (irreparable?). So much damage inflicted by one investment.

 

Good luck Mr Chen.

 

Reputational harm. 

 

FFH really effed up on this one with their bid.  Apparently, they were nowhere near to lining up partners for a real bid.  And that has actually made things worse for BBRY.

 

If FFH put in the convertible at $7, which would obviously be opportunistic, then forget all comparisons to BRK.  They've already lost a lot of people on this one, and they don't want to destroy their reputation overnight.

 

I hold BBRY and I think the deal is terrible for them (the convertible part mostly). They have $2.34B in the bank ffs.