BB - BlackBerry

[rkbabang]

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.

 

 

Reading ^^ that makes me think the following might just be the plan.

 

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

 

I hope there is a plan.  Because "Change the management team and turn the handset business around" just isn't going to happen.

 

[fareastwarriors]

http://www.businessweek.com/articles/2013-11-04/china-may-be-rooting-for-a-lenovo-bid-for-blackberry

 

China May Be Rooting For a Lenovo Bid For BlackBerry

[txlaw]

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".

 

I get why convertible arb hedge funds would participate in this placement. 

 

What we disagree on is whether the nature and pricing of this security has any relationship whatsoever to what FFH and BBRY management think the break up value is.  Given that at the end of last quarter, BBRY had more than $2.5 billion in cash to burn through while they either sell themselves or liquidate, not to mention the ability to borrow off assets like their patent portfolio, what's the point of the placement?

 

I thought it was to mitigate the fire sale aspect of this process as best as possible by buying time, demonstrating that BBRY can continue to support existing customers, and signaling what they think break-up value is.  But now I'm wondering whether they really are intending to just keep on going with a turnaround plan.

 

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 don't disagree with you at all on the notion that platforms emerge and decay, and my thesis has always taken into account the possibility that BB10 would crash and burn (that's why I always talked about "run off/break up" value).  But we disagree on the matter of degree to which BB10 crashes and burns. 

 

BB10 is a niche product.  It's like the pager business.  BB10 doesn't necessarily go away unless it is bought up by another company that incorporates BBRY's technology into their own product -- in fact, the technology is the only reason why anybody would even go with BBRY's platform at all at this point.  It's not that IT departments bet on the wrong horse -- there's a real reason why you have these people going with BBRY despite all their employee's rightful disdain for the BB10 platform.  It's the technology that BBRY controls that is worth something.

 

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.

 

I don't think you can conclude that nobody thinks the assets have value.  We don't know yet what the guys who have looked at BBRY are thinking in terms of snapping them up.  I can you tell this -- everybody sees a distress situation, and they're going to try to get the best deals possible for any asset purchases.

 

We now know that PW made a huge mistake when he set this deadline for lining up financing to buy the company because he was nowhere near having a real deal on the table.  That doesn't mean that the assets don't have value.  The assets do have value, but there's also more than just asset value at play here.  In a distress situation, you don't necessarily get what you think your assets are worth.  And PW made things worse by putting this soft deadline in. 

[giofranchi]

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.

 

Ron,

yesterday BBRY was a 1.9% position in FFH’s portfolio of investments… This whole thing is way exaggerated by almost everyone on the board… FFH has always adopted a basket approach to equity investing, and they have always been great believers in averaging down: sometimes it works, other times it doesn’t… It is simply the rule of the game… I don’t even understand all these talks about “reputation”… Imo FFH will go on buying insurance businesses all over the world practically undisturbed… Nowadays it is very easy to attack FFH, and people feel entitled to write so arrogantly about Mr. Watsa & his team, that I think it is a real shame. I don’t believe them.

 

giofranchi

 

[txlaw]

Yeah, but in the long term, what would do more damage to their shareholder base?  Given FFH's involvement with BBRY, don't you think doing what you suggest would cause people to say that FFH is more akin to a Cerberus or KKR than a BRK?  If so, wouldn't that cause people considering partnering with FFH to think twice?

 

Also, it's not clear to me why BBRY management would agree to the type of convertible you're suggesting.  After all, they do have $2.5 billion in the bank.

 

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.

[Viking]

Blackberry's core business has been enterprise. Decisionmakers in this segment are very slow to make changes or rock the boat. With the challenges Blackberry has been having the past 3 or 4 months, and especially the past 30 days, a fire is being lit under these decisionmakers butts. All of Blackberry's current enterprise customers, especially the large ones, are likely working overtime to come up options of how fast they can move from Blackberry devices and services. The longer the uncertainty goes the faster the business will decline. It will be interesting to see where the business goes. It looks like Apple has been and will continue to be a the big winner with the high end hardware sales in North America and Samsung in ROW. The service business (BBM)?

 

Regarding patent portfolio value, when the Nortel patent portfolio was auctioned off the initial bid from Google as $900 million and I think it ended up selling for $4.5 billion to the Apple/MSFT/Blcackberry group. It sold for much, much more than people expected. This may be where the value is for Blackberry.

[plato1976]

now the key is how much cash they will burn to get out the mess

 

hard to value it...

 

maybe it's even overvalued at this level now...

 

Yeah, but in the long term, what would do more damage to their shareholder base?  Given FFH's involvement with BBRY, don't you think doing what you suggest would cause people to say that FFH is more akin to a Cerberus or KKR than a BRK?  If so, wouldn't that cause people considering partnering with FFH to think twice?

 

Also, it's not clear to me why BBRY management would agree to the type of convertible you're suggesting.  After all, they do have $2.5 billion in the bank.

 

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.

[Guest wellmont]

the reason they got this capital is because you are going to see shocking negative prints on the income statement. massive restructuring charges that are going to scare everybody. they are going to burn up lots of cash.

[ItsAValueTrap]

Raising money suggests that Blackberry is going to invest more money into R&D to try to make money.  It's inconsistent with the company being broken up and liquidated.

[plato1976]

feel it's kind of max-pain point - but this falls into "too tough" pile for me now

 

Raising money suggests that Blackberry is going to invest more money into R&D to try to make money.  It's inconsistent with the company being broken up and liquidated.

[Guest wellmont]

ts you're contradicting yourself. on the one hand you say there is "real value" here. on the other you say this is a "distress" situation. well if a business is in distress and it has $2b+ in the bank and no debt, then how could the assets have value? the assets are destroying value. they are incinerating cash.  so much so that they need more of it and fast. the only investment pw will make now is in the most senior security he can.

 

a niche device business is kind of an oxymoron. you can't just make 1m phones. it just does not work. it's a scale business. the customers are going to leave. there are plenty of great alternatives. even for enterprise.

 

However, there must be some kind of money making business in all this. and then you have some patents. That's where I think this is headed. pw is going to chip and chip away until he finds something that can make money. And he is going to close down stuff and sell assets.

 

Be very careful following PW because you think he just bought "equity". he did not. He bought something far different that you can't buy.  And the signal this sends is not a good one if you hold equity in bbry.

[txlaw]

Raising money suggests that Blackberry is going to invest more money into R&D to try to make money.  It's inconsistent with the company being broken up and liquidated.

 

Yeah, this is now what I'm worried about. 

 

If this is the case, perhaps the intention with the buyout really was to try to effectuate a turnaround as a private company.  Which would mean that I was also wrong about the company being broken up by FFH and its potential partners.  And that might also explain why FFH was not able to line up the financing.  It's one thing to take BBRY private and break it up -- it's another thing to try to participate in the turnaround/transformation of the company. 

 

So three possibilities for the capital raise:

(1) To buy time to mitigate fire sale aspect of the process (which presumably would include lobbying more for the possible sale to a foreign company);

(2) To continue with a turnaround plan and invest into the biz, which may have been the plan even if BBRY went private; or

(3) To shore up the liquidity position because there will be a "shocking" cash burn this quarter.

 

Based on all these press releases, it sounds like possibility 2 is the reason for the capital raise, which at this point is not necessarily good given BBRY management's track record.  Possibility 1 is the most positive explanation for current shareholders and is not at all farfetched, as we are reportedly seeing interest from buyers.  Possibiilty 3 is the most negative explanation and would be very, very bad for shareholders.

 

I have no effing clue which of these is the "right" explanation at this point.

[Guest wellmont]

IGNORE what this company says in press releases and management interviews!!! it's dangerous to your financial well being. Does anyone not remember how criminal the PR barrage from bbry was about how well bb10 was doing?

[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.

 

Ron,

yesterday BBRY was a 1.9% position in FFH’s portfolio of investments… This whole thing is way exaggerated by almost everyone on the board… FFH has always adopted a basket approach to equity investing, and they have always been great believers in averaging down: sometimes it works, other times it doesn’t… It is simply the rule of the game… I don’t even understand all these talks about “reputation”… Imo FFH will go on buying insurance businesses all over the world practically undisturbed… Nowadays it is very easy to attack FFH, and people feel entitled to write so arrogantly about Mr. Watsa & his team, that I think it is a real shame. I don’t believe them.

 

giofranchi

 

Gio, Of his stock investments it represented I believe 22% or so of his portfolio as of June 2013. What happened to his Due Diligence?

 

Stock Holdings

Prem Watsa - Fairfax Financial Holdings i

 

Period: Q2 2013

Portfolio date: 30 Jun 2013

No. of stocks: 39

Portfolio value: $2,384,308,000

 

Holdings

Activity

Buys

Sells

History

Stock % of portfolio Shares Recent activity Reported Price*

hist

BBRY - BlackBerry Ltd. 22.71 51,854,700 $10.44

hist

JNJ - Johnson & Johnson 21.30 5,915,800 Reduce 0.43% $85.86

hist

RFP - Resolute Forest Products 15.98 28,957,327 Add 16.87% $13.16

hist

LVLT - Level 3 Communications Inc. 10.68 12,071,803 Reduce 6.65% $21.09

hist

SD - SandRidge Energy Inc. 6.47 32,463,200 $4.75

hist

DELL - Dell Inc. 5.01 8,976,589 $13.32

hist

USB - U.S. Bancorp 4.41 2,909,279 $36.14

hist

OSTK - Overstock.com Inc. 3.76 3,184,677 Reduce 6.02% $28.16

hist

XCO - EXCO Resources Inc. 3.46 10,812,200 $7.64

hist

WFC - Wells Fargo 2.29 1,323,663 $41.26

hist

BWINB - Baldwin & Lyons Inc. CL B 0.98 969,875 $24.19

hist

WMT - Wal-Mart Stores 0.69 220,000 $74.49

hist

BCE - BCE Inc. 0.46 268,300 $40.87

hist

RYAAY - Ryanair Holdings PLC 0.41 189,900 $51.45

hist

PFE - Pfizer Inc. 0.28 235,000 $28.05

hist

KW - Kennedy Wilson Holdings Inc. 0.28 400,000 $16.64

hist

CRESY - Cresud Inc. 0.23 723,012 $7.42

hist

DXM - Dex Media Inc. 0.12 159,198 Buy $17.65

hist

BRK.B - Berkshire Hathaway CL B 0.10 21,100 Add 4.98% $111.85

hist

USG - USG Corp. 0.04 42,800 $23.06

hist

BRK.A - Berkshire Hathaway CL A 0.04 6 $168000.00

hist

C - Citigroup Inc. 0.04 20,000 $47.95

hist

NYT - New York Times Cl. A 0.03 70,000 Add 40.00% $11.04

hist

PTEN - Patterson UTI-Energy 0.02 19,000 $19.37

hist

SLM - SLM Corp. 0.02 20,000 Reduce 20.00% $22.85

hist

MBI - MBIA Inc. 0.02 30,000 $13.30

hist

ORI - Old Republic International 0.02 45,000 $12.84

hist

NYCB - New York Community Bancorp 0.02 40,000 $13.98

hist

MRK - Merck & Co. 0.02 12,000 Add 50.00% $46.42

hist

HOLX - Hologic Inc. 0.02 20,000 $19.30

hist

PBNY - Provident New York Bancorp 0.01 25,000 $9.32

hist

EDU - New Oriental Education & Technology 0.01 11,100 Reduce 50.00% $22.16

hist

HPQ - Hewlett-Packard 0.01 9,400 Reduce 53.92% $24.79

hist

IBM - International Bus. Machines 0.01 1,200 Buy $190.83

hist

UPL - Ultra Petroleum Corp. 0.01 13,400 Reduce 59.88% $19.78

hist

CTB - Cooper Tire & Rubber Co. 0.01 7,000 Buy $33.14

hist

CISG - Cninsure Inc. 0.01 45,000 $6.00

hist

NTE - Nam Tai Electronics Inc. 0.01 35,000 $5.60

hist

CITZ - CFS Bancorp Inc. 0.00 10,000 $10.70

[Parsad]

Gio, Of his stock investments it represented I believe 22% or so of his portfolio as of June 2013. What happened to his Due Diligence?

 

...and where the entire stock portfolio, of which BBRY makes up 22%, is only 1/10th of the entire assets.  So BBRY makes up 2.2% of all assets! 

 

Yes, this was a mess!  Yes, I still don't know why they don't allocate such sums to other great businesses!  But c'mon guys, stop over-reacting.  Cheers!

[giofranchi]

Ron,

That's exactly what I mean!

Despite BBRY, FFH's equity investments were up 6% in Q3 2013, better than the 5% achieved by the S&P500... I am not saying they didn't make mistakes with BBRY... I am only saying, who cares?! They have made many other errors in the past, they will make many more errors in the future! Why everyone is so obsessed with BBRY?! I cannot understand.

 

giofranchi

[wknecht]

Don't forget about the additional $250mm committed today (granted, this is not equity). BBRY equity plus convert is close to 10% of Fairfax's equity. That's not huge, but it's not trivial either.

[txlaw]

ts you're contradicting yourself. on the one hand you say there is "real value" here. on the other you say this is a "distress" situation. well if a business is in distress and it has $2b+ in the bank and no debt, then how could the assets have value? the assets are destroying value. they are incinerating cash.  so much so that they need more it quick. the only investment pw will make now is in the most security he can.

 

Having real asset value and being in a "distressed" or "fire sale" situation are not mutually exclusive.  And perhaps "distressed" is not even the right term to use (at this time) given BBRY's cash position. 

 

CHK has and had real NAV, but it was in a position at one point where the market and a big shareholder (Icahn) forced them to sell valuable assets at cheap prices to de-lever.  CLWR had real asset value, as evidenced by the price eventually paid for its assets, but because of its liquidity position, it initially had to accept a low ball bid from Sprint.  Anyone involved in RE during the crisis who was also highly leveraged had to sell off valuable assets at fire sale prices. 

 

So don't confuse a "distress" or "fire sale" position with lack of asset value.  To the extent there is a cash burn at BBRY, it's not because the assets are destroying value.  It's because management is deploying cash in hopes of a return on investment, to preserve existing asset value, or because they are contractually obligated to do so (like with the Z10 inventory purchase obligations). 

 

a niche device business is kind of an oxymoron. you can't just make 1m phones. it just does not work. it's a scale business. the customers are going to leave. there are plenty of great alternatives. even for enterprise. there must be some kind of money making business in all this. and then you have some patents. That's where I think this is headed. pw is going to chip and chip away until he finds something that can make money. And he is going to close down stuff and sell assets.

 

I agree that scale is an issue.  It's unclear to me how BBRY makes money with BB10 when it comes to device sales.  That doesn't mean that BB10 goes away.  If someone with scale were to buy the handset/OS biz, they could easily make that niche biz profitable.  From device sales in the short term, but from the sale of software and services in the medium to long term.  Even BBRY could potentially start to profit from the software and services part of the biz model once they've right sized themselves. 

[tengen]

Looking at Chen's history with Sybase leads me to wonder if there is some notion afoot to re-position BBRY by  making some sort of acquisition. That might explain why they are raising $1 billion. Is that a crazy idea?

[Palantir]

Why can't they be a niche device maker? They have a neat little niche in the enterprise space, they can certainly squeeze profits out of it.

 

A relative of mine just got a job at a ibank, and they handed him a blackberry, he bought an iPhone 5S anyways, but I digress...

[SmallCap]

interesting note about market place decisions being made about the use of blackberry handsets.

 

My father in law is a gov employee and for years he has had blackberries, last week he just received a Iphone for work from the gov.

[wisdom]

http://www.theglobeandmail.com/report-on-business/watsa-high-debt-deal-not-right-for-blackberry/article15242905/

 

[plato1976]

Is it an excuse ? :)

 

http://www.theglobeandmail.com/report-on-business/watsa-high-debt-deal-not-right-for-blackberry/article15242905/

[wisdom]

I have no opinion on it other than the fact that I would trust Prem based on his past behaviour. He would state what he believed.

 

I thought it better to hear what the person responsible for the decision has to say rather than jump to conclusions.

 

There is always the possibility that he is mistaken.

[DCG]

Prem seems to have been completely in over his head with BBRY from day one.