Friday, August 9, 2013

BlackBerry may be taken private

Disclosure: I am long BB
This morning, the financial media reports that one source has indicated BlackBerry's board is considering taking the company private. Shares are soaring 8% in pre-market on this news and as I shareholder, I welcome this news. This news shows that CEO Thorsten Heins was serious when he said during the annual meeting a month ago that BlackBerry will consider all options to enhance shareholder value. I definitely think BlackBerry will do better as a private company by ignoring the short term focus of Wall Street and most investors who just want a quick profit from a pop in share price. Its BB10 products and BES 10 is just gaining traction and more value could be created  as a private company. (see my post on reflection of the annual shareholder meeting). According to Bloomberg, BlackBerry did held talks with private equity firm Silver Lake (the one that is trying to take Dell private) in 2012 but no agreement on valuation was reached. It did report however, BlackBerry attempted to held partnership talks with Silver Lake regarding enterprise computing.  

Who will actually want to take over BlackBerry? I doubt any private equity firm is willing to lever themselves up for a technology firm like BlackBerry. Thus, I see a deal mostly likely with the help of BlackBerry's top shareholder, Prem Watsa and Fairfax Financial. It may be structure like a semi-management buyout. I'm expecting any deal will have to be at least $15 (or a 50% premium from today's market prices) for current shareholders to tender their shares in. I ultimately expect a price around $17 is more likely to convince shareholders to tender. My conservative valuation of this company is still around $13-$15 so I'm not willing to tender unless its above $15. No matter what happens, I expect arbitrage firms may come into in and try to bid up the share price in anticipation of a high bid but chances are pretty low, yet still possible. Even if BlackBerry is not taken private (the source in the media report says no deal is imminent and no formal exploration of a sale has begun), this news helped to boost the share price which may discourage the deadly rumor that the company is going bust soon. A more likely scenario in my view is finding a partner to license the BB10 operating system or a partner to build its enterprise mobility system. As Mr.Heins said during the annual shareholder meeting, he prefers partnerships rather than a sale.

UDPATE: CPPIB head commented in an interview with Bloomberg that he is willing to invest in BlackBerry if it goes private. As of Monday August 12, BlackBerry announced its board formed a special committee to explore "strategic alternatives" which means they are accelerating their efforts. What is interesting to note is that Prem Watsa resigned from the board expressing "conflict of interest". This offers some hints Fairfax is potentially partner with a PE firm to take the company private. Also, being off the board means more freedom for Fairfax to accumulate more shares given trading restriction of being a director. I don't buy the bears argument that Prem's resignation is negative sign. Expect some announcement in the next month. 

That is just my 2 cents. I will provide more thoughts as this news develop. 

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