BB - BlackBerry

[rpadebet]

Also, this doesn't necessarily foreclose partial break up of BBRY, with the most national security sensitive aspects of the BBRY biz remaining in Canadian hands.

 

That looks the more probable scenario to me. They need more time and efforts than they previously estimated I guess. They would divest the pieces they don't need/see as strategic and retain just a "core" business and built it over time like a small start-up.

Keep the most promising parts/talents if you want to come up with some revolutionary technology sometime in the future. In other terms, back up to make a bigger leap.

Could turn out very profitable if well executed but won't be tomorrow.

 

Ohh please don't say that!!  ;)

That was kind of the rationale of my trade and I have worked hard to convince myself that these guys are not on board with anything close to that.

 

What makes you confident that they might consider it now? Why have they not said/hinted anything about this since yesterday? Why invest 1bill new capital and call it a runway for turn around if they hope to sell the pieces they can?

 

Time is not a friend of this business, unless they come up with something totally new and unexpected.

 

The more I think about this, this is like SHLD in some aspects, i.e. the math makes perfect sense on the spreadsheet, the execution is a different story. That depends on the probability that it will happen and the timing around when it will happen. Last month the answers to that seemed to be "high" and "quick", now it is "low" and "who knows when"!

 

[Guest wellmont]

http://www.thestar.com/business/tech_news/2013/09/25/google_picks_waterloo_for_tech_hub.html

 

the best and brightest are going to exit bbry leaving them with maintainers. not builders. this is not a new phenomenon. it's capitalism. and we are in a sellers market for good engineers.

[rkbabang]

http://www.thestar.com/business/tech_news/2013/09/25/google_picks_waterloo_for_tech_hub.html

 

the best and brightest are going to exit bbry leaving them with maintainers. not builders. this is not a new phenomenon. it's capitalism. and we are in a sellers market for good engineers.

 

Wellmont, going as far back in this thread that I've read, you are one of the only posters who gets it and makes sense.  And you've gotten hell for it too.  You are correct about this as well.  I'm an engineer myself and I know exactly what you are talking about.  When I see the sales flattening in my group I start looking for another group or another company.  I moved to different product lines in my last company 3 times over 17 years and have always been 1yr-18months ahead of the product cancellation and/or layoffs.  The last time, 2 years ago, I just changed companies.  The group I left at my old company no longer exists.  I would have left RIM more than 2 years ago.  I certainly wouldn't be sticking around now.

[Guest wellmont]

rkbabang thanks for your feedback on your engineering experience. engineers are the raw materials for bbry products. this is why tech companies don't come back.

[Guest valueInv]

I'm beginning to run out of popcorn. ;D ;D ;D

[txlaw]

As for the amount of cash burn expected, the market did not expect 6 quarters of cash burn, which will likely turn into more. It was surprised by that, as was everybody on this thread. Nobody expected a company with $2b in the bank and no debt to raise another  $1b. That's why it's down 15% from last week.

 

Really?  The market was surprised by the possibility of cash burn?  Come on now -- hasn't everyone on this thread been discussing the possibility of cash burn for the next couple of quarters?

 

The market was surprised by the floor bid being withdrawn, the CEO being fired, and a renewed vow to go back to transformation, rather than sale or break up.

 

Mature companies that lose their way don't just go from burning cash for two years, to profitability. You don't just flip a switch and say "Hey look at us! We've been awful for two years now but we're suddenly crazy profitable". These kind of technology companies fall further and further behind their successful competitors, and eventually get dropped from the conversation. They become zombies, like sun micro and silicon graphics, which actually filed for bk.

 

If their plan really is to try to maintain status quo and operate the company as a device business, it is Still a great short. It could end up being a zero, which btw would give PW total control of the bk process, and leave current shareholders with squat.

 

I totally agree about not being able to flip a switch.  Who says that that's what people think is gonna happen -- that BBRY is all of a sudden going to become crazy profitable?

 

With any company that has a cigar butt business that generates most of its profits, you cannot expect to have a going concern biz left over after the cigar butt biz has been exhausted if you don't make investments.  It's just not possible.  And transformation takes time.  Why do you think Michael Dell took Dell private?  It's because he thinks that with time, and without capital markets pressures, he can more easily reinvest legacy business cash into a biz that's growing.  That's what IBM's whole philosophy is with regards to transformation as well.

 

It's highly debatable whether BBRY has the luxury of time.  I'm very skeptical, which is why I would rather have break up or resource conversion rather than a turnaround attempt.  So you misunderstand my position, as usual.  What I was saying is that you were going way overboard when (I thought) you were saying that they were raising cash because of some massive, unexpected cash burns coming up in the next quarter or two.

[txlaw]

http://www.thestar.com/business/tech_news/2013/09/25/google_picks_waterloo_for_tech_hub.html

 

the best and brightest are going to exit bbry leaving them with maintainers. not builders. this is not a new phenomenon. it's capitalism. and we are in a sellers market for good engineers.

 

Yes, this is problem Number 1 that has to be addressed if they really are going to try to transform.  As I said before, if I were an engineer at BBRY, I would be fleeing to GOOG or to the start up world.  And it's not just engineers that are leaving.  It's customers too. 

 

Can John Chen solve this problem?  I am skeptical.  The FFH bid did not help things at all.

 

I am definitely worried about there being a binary outcome now.

[Liberty]

http://www.thestar.com/business/tech_news/2013/09/25/google_picks_waterloo_for_tech_hub.html

 

the best and brightest are going to exit bbry leaving them with maintainers. not builders. this is not a new phenomenon. it's capitalism. and we are in a sellers market for good engineers.

 

Yes, this is problem Number 1 that has to be addressed if they really are going to try to transform.  As I said before, if I were an engineer at BBRY, I would be fleeing to GOOG or to the start up world.  And it's not just engineers that are leaving.  It's customers too. 

 

They certainly are getting recruited:

 

http://money.cnn.com/2013/10/11/technology/enterprise/blackberry-apple/

[Guest wellmont]

If you go back and read the last two months of the thread you will discover that lots of the longs were counting over  $2b of cash as part of the break up value. here is an example.

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/rim-research-in-motion/msg132685/#msg132685

 

I kept arguing that they were going to burn cash but I don't think people understood my argument. There were others who were trying to value the company on TBV and I aruged that was a southbound moving target. you have to account for value destruction, i.e. cash burn.

 

There are going to be massive unexpected cash burns over the next several quarters (Prints). That's what I said. And I was surprised that bbry management admitted it on the same day I wrote it, when they said this $1b cash we raised (which came as a complete "shock" to everybody here) is to mitigate expected cash burn over the next 6 quarters. I would say $1b+ of cash burn qualifies as massive. Why else would a company with $2b+ of net cash on the balance sheet sell junk bonds to increase their cash?

 

Dell is in no way analogous to this situation. Dell makes money. Dell produces fcf. dell has a real business and they had assets. insiders wanted to own it. Dell was able to finance the purchase and had people who actually made a binding offer. None of that is true with bbry. It's a money loser that insiders are running from or are buried in. it has no assets that can be leveraged. It's barely trading above current liquid assets. No value for the business or intangibles at all. The current share price is signaling more value destruction straight ahead.

 

There has been resource conversion here. Shareholder resources have been converted into dust.

[Guest valueInv]

I'm sure Parsad will appreciate the last line of the article:

 

http://www.bloomberg.com/news/2013-11-05/blackberry-comeback-hampered-by-vanishing-cash.html

[Alekbaylee]

Qatari fund embarks on...

 

http://business.financialpost.com/2013/11/06/blackberry-ltd-qatari-soveriegn-fund-invests-in-us1-billion-debt-offering/

[Guest wellmont]

they needed more junk bonds. :)

 

"The source said the Qatari fund was attracted to invest in the offering because of the size of the coupon offered."

[fareastwarriors]

http://www.businessweek.com/articles/2013-11-06/how-blackberry-and-watsa-can-win-with-john-chen#r=hpt-fs

 

 

How BlackBerry and Watsa Can Win With John Chen

[wisdom]

http://www.bloomberg.com/news/2013-11-06/apple-s-ex-ceo-sculley-says-was-lining-up-blackberry-bid.html?cmpid=yhoo

 

Apparently there were people interested in buying and there was cash available to do the deal.

[nwoodman]

http://www.livemint.com/Companies/xHkaTMVPJC6nGAPfw8gmIP/Qatar-Holding-invests-in-BlackBerry-debt-offer-source.html

 

The Qatari sovereign wealth fund bought as much as $200 million of the offering, in which Fairfax Financial Holdings Ltd, BlackBerry Ltd’s largest shareholder, has itself put in $250 million.

 

That's approximately $450m accounted for.  Looking forward to seeing who else tipped in

 

cheers

 

nwoodman

[wachtwoord]

I'm increasingly annoyed by this. I cannot get my head around them wasting money by borrowing when they have so much net cash.

[fareastwarriors]

http://www.bloomberg.com/news/2013-11-07/blackberry-s-best-hope-is-without-blackberrys.html

 

 

BlackBerry’s Best Hope Is Without BlackBerrys

[txlaw]

I'm increasingly annoyed by this. I cannot get my head around them wasting money by borrowing when they have so much net cash.

 

We're just going to have to wait until the next CC to see what their reasons are for raising so much cash.  I'm guessing they will just say that they want to assure existing/potential customers that they won't be going anywhere anytime soon.  It's a bit like the rationale for Moynihan giving WEB that sweetheart deal.  It was all about the customers.

 

Seeing the cash burn next quarter will also give the capital raise some context.

[Stone19]

Do you think this will affect the dividend from FFH this year?

[woodstove]

Hi Wachtwoord... My guess about the reason for the debt issuance is perhaps off the wall ... but ... There may have been some pressure to issue additional shares to avoid a squeeze of naked shorting.  FFH did something similar in the past, to let the manipulators off the hook, at a price.  In this BB situation, at price of $10/sh.  Also, regarding where did Chen name come in, perhaps he was considered long ago as part of FFH plan, ie not last-moment name when decided to do debt issuance instead of privatization.  Further, stabilizing for now and letting the company run forward, gives more chance of realizing good value from situation.  As you can see my take on BB business is not in sync with majority opinion in recent discussion.  I think FFH has made a good deal here, raises its equity position to about 13 pct of enterprise (after exercise of conversion of debt in future).  It is also good deal for those who were lamenting being forced to sell at $9.  FFH issuance of its own shares, gives brokerage firms some additional business, as well as stabilizing FFH balance sheet after BB debt participation.  BB debt allows participation by others who want a window on the business opportunity with senior position if goes badly.  Asset monetization can be achieved easier via licensing than via sale of parts and possible associated political interventions.  So there are many factors, all working together, and in my own opinion, probably be ok.

 

[nestorius]

The buyers of the debs are listed in a 13D filed for BB

 

FFH $250M

Mackenzie Financial $200M

Canso Investment $300M

Markel $100M

BAM $50M

Qatar Holding $100M

Total $1,000

 

See Schedule A: http://www.sec.gov/Archives/edgar/data/915191/000119312513432720/d622931dex3.htm

[Grenville]

The buyers of the debs are listed in a 13D filed for BB

 

FFH $250M

Mackenzie Financial $200M

Canso Investment $300M

Markel $100M

BAM $50M

Qatar Holding $100M

Total $1,000

 

See Schedule A: http://www.sec.gov/Archives/edgar/data/915191/000119312513432720/d622931dex3.htm

 

Interesting. Thanks for posting, I'm surprised to see Markel and Brookfield.

[wachtwoord]

Hi Wachtwoord... My guess about the reason for the debt issuance is perhaps off the wall ... but ... There may have been some pressure to issue additional shares to avoid a squeeze of naked shorting.  FFH did something similar in the past, to let the manipulators off the hook, at a price.  In this BB situation, at price of $10/sh.  Also, regarding where did Chen name come in, perhaps he was considered long ago as part of FFH plan, ie not last-moment name when decided to do debt issuance instead of privatization.  Further, stabilizing for now and letting the company run forward, gives more chance of realizing good value from situation.  As you can see my take on BB business is not in sync with majority opinion in recent discussion.  I think FFH has made a good deal here, raises its equity position to about 13 pct of enterprise (after exercise of conversion of debt in future).  It is also good deal for those who were lamenting being forced to sell at $9.  FFH issuance of its own shares, gives brokerage firms some additional business, as well as stabilizing FFH balance sheet after BB debt participation.  BB debt allows participation by others who want a window on the business opportunity with senior position if goes badly.  Asset monetization can be achieved easier via licensing than via sale of parts and possible associated political interventions.  So there are many factors, all working together, and in my own opinion, probably be ok.

 

Thanks for trying to explain but I don't understand what you mean? Why would BBRY or any of its shareholders mind a short squeeze? How would issuing more shares (they are actually paying FFH and their partners to take out an option) have any influence on this?

 

I would hate this deal if it wasn't convertible. Now I hate it even more.

[fareastwarriors]

http://www.bloomberg.com/news/2013-11-07/blackberry-s-chen-gets-pay-package-about-88-million.html

 

BlackBerry’s Chen Gets Pay Package About $88 Million

[Guest wellmont]

And pw is chairman of the comp committee. Note he did not get options, which would pay off only if he creates value for existing shareholders. He got restricted stock, which essentially transfers $85m of value from shareholder pockets to his, simply because he agreed to "show up" and come to work. the company never ceases to amaze. Of course their defense is "it's the going rate" and that's what our consultants told us he was worth.