BlackBerry Ltd. has agreed to be acquired by Fairfax Financial Holdings for a $4.7 billion, both companies announced Monday.
The Toronto-based financial holdings conglomerate which is Blackberry’s biggest shareholder, has agreed to pay $9 per share for the beleaguered mobile company. Shares of BlackBerry were trading at $8.23 per share prior to the news.
The Financial holdings company also happens to be BlackBerry's largest shareholder, owning about 10 percent of the company's common shares.
Fairfax Financial, sometimes called the Berkshire Hathaway of Canada, is primarily an insurance company.
With the deal, Blackberry will turn into a private company from public after years of losing ground to Apple Inc.’s iPhone and Google Inc.’s Android.
The deal will be signed by November 4. However, BlackBerry board is open to better offers until then provided that they are “alternatives superior to the present proposal from the Fairfax consortium.”
The acquisition news comes two days after BlackBerry announced it was cutting 4,500 jobs — about 35% of its workforce — and taking a loss of nearly $1 billion in its second quarter. The loss was primarily attributable to the Z10, the company said.
Earlier this month, it was also reported that the company would lay off half of its US sales team.
This weekend, BlackBerry attempted to release its Messenger app for iOS and Android, though years too late, but quickly halted the move citing demand “issues” with its servers.
BlackBerry then and now
BlackBerry credited with inventing the first smartphones more than a decade ago has faltered today in its competition with popular smartphones such as Apple’s iPhone and Samsung’s Galaxy which offer better Web browsing and a wider range of applications. It has just 3 percent of the worldwide smartphone market, according to a second-quarter report by the IDC research firm.
BlackBerry was worth more than $100 billion during its peak in mid-2007. If the acquisition deal does go through, BlackBerry will go private for 2/3rds the price of Nokia, which Microsoft acquired earlier this month for $7.2 billion.
How will the acquisition deal help Blackberry.
BlackBerry had three core divisions. Services, Collaboration and Devices. The Devices division brought most of the revenue to the company, as its BlackBerry
The hardware division of BlackBerry does not really exist these days. The only smartphones that BlackBerry sells now is its old BlackBerry 7 devices that are trusted by large corporations and government officials. Blackberry has traditionally dominated this market, building a reputation for security that won over government clients such as the White House and the Defense Department.
But in recent years, government agencies have loosened their policies, allowing workers to view work e-mail to their own devices and providing another challenge to BlackBerry.
Finding a market for phones that can be used for work and play is a bit difficult for BlackBerry.
“As Apple and Android improve their respective enterprise and device management tools, BlackBerry’s advantage even there may diminish,” said Brian Proffitt of the University of Notre Dame.
“It’s not the devices and hardware where BlackBerry has value, but rather its software and mobile device management service.”
Fairfax Financial provides BlackBerry the liberty to be best at few things than to be good at everything. Blackberry’s strength lies in creating secure hardware and software and facilitating communication via email and instant messaging. Those capabilities fall in Blackberry’s Services and Collaboration divisions, respectively.
With Fairfax deal, BlackBerry wouldn’t really require to release a brand-new device every quarter to keep up with iPhone, Samsung and HTC. It can concentrate on keeping its existing customers happy, while focusing on its BlackBerry Enterprise Services (BES 10) and BlackBerry Messenger. BlackBerry will become a mobile device and application management company from here on out.
“The three divisions taken together could have synergies that could keep BB running as a viable concern. But it won’t be easy,” Jack Gold, principal analyst and founder of J. Gold Associates, said. “So, with all the potential outcomes (sale, shut down, breaking up) this is probably the best possible outcome for BB. Whether it’s too little too late is yet to be seen.”
"Going private and potentially bringing back the founder of the company, Mike Lazaridis (as has been rumored) could buy them some time to put the house in order," he added.
Lazaridis, was BlackBerry's co-CEO until early 2012 and a board member until March.
Expressing a positive outlook for Blackberry, Fairfax chairman and chief executive Prem Watsa said: “We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees. We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.”
"The brand name, a security system second to none, a distribution network across 650 telecom carriers worldwide, a 79 million subscriber base, enterprise customers accounting for 90% of the Fortune 500, almost exclusive usage by governments in Canada, the US and the UK, a huge original patent portfolio, an outstanding new operating system developed by QNX and $2.9 billion in cash with no debt, are all formidable strengths as BlackBerry makes its comeback!,” he added.
Canada's Warren Buffet
The journey of Prem Watsa, the Indian-born billionaire and the CEO of Fairfax Financial is a rags-to-riches tale. As a young student, he turned his back on chemical engineering, to eventually become one of Canada's wealthiest investors. Some of his key career highlights include, correctly predicting the collapse of the subprime mortgage market in 2007. He also saved the ailing Bank of Ireland, a risk that turned out to be a good decision.
Under Watsa’s leadership, Fairfax has grown into a $31 billion behemoth. The company's share price has increased by an average of 21 percent annually over the last two decades. He is deservedly called the Warren Buffett of Canada and here are three similarities between both the investors:
Watsa, like Buffett is a student of Ben Graham's value investing strategy, and believes in buying companies whose shares seem undervalued by the market.
Like Buffett, Watsa has entered into an insurance business, investing in a broad range of industries.
And like Buffett, he has been successful. In 2008, Fairfax was Canada's most profitable corporation.
Watsa Roots for Blackberry
Watsa has called BlackBerry "Canada's greatest technology company." He is currently chancellor at the University of Waterloo, BlackBerry's hometown school, and would like to see the company continue to provide jobs there. The position was previously occupied by BlackBerry founder (University of Waterloo graduate) Mike Lazaridis, who Watsa describes as a "good friend." Lazaridis has also made substantial donations to the university.
Watsa has also invested in newspaper companies and PC makers like Dell. In Blackberry’s case he likes to believe, "Trees don’t grow to the sky and markets don’t fall to the floor." It's been a rough few years for Blackberry and the company may finally have hit bottom but Watsa says it is poised for a rebound.