Chris Hughes | University of Waterloo, Graphics, Photo/Imaging
With the announcement of its proposed $4.7 billion takeover bid, Fairfax Financial Holdings and its chairman, Prem Watsa, answered the long-running question, “Who would ever buy BlackBerry?” But in doing so, it posed a new one, as well: Why? And that’s not a particularly easy question to answer, either.
Just what does Watsa see in the collapsing smartphone pioneer, which just days ago announced a nearly $1 billion shortfall in second-fiscal-quarter earnings and plans to sack 40 percent of its workforce? Something that few others seem to be able to visualize – a long-term play in which BlackBerry successfully reinvents itself? Or is this bid simply a last-ditch effort to put a floor beneath BlackBerry’s tumbling share price in the hope of enticing other potential buyers and saving Fairfax’s investment in the company?
In a Monday statement announcing Fairfax’s offer, Watsa said it was the former, describing the move as one that “will open an exciting new private chapter for BlackBerry.” In that sense, the deal is simply the latest manifestation of Watsa’s faith in what he once described as “Canada’s greatest technology company.”
As Watsa wrote in a March letter to Fairfax Financial shareholders, “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 percent of the Fortune 500, almost exclusive usage by governments in Canada, the U.S. and the U.K., 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!”
But that was more than six months ago, and in the time since, BlackBerry has slipped deep into the mud that’s been sucking at its boots since it first dismissed the iPhone and Android as credible threats to its business. Sure, the company does have some potentially valuable assets in its patent portfolio and secure messaging platform, BlackBerry Messenger. And there’s a few billion in cash and investments, as well. But BlackBerry is hardly a company poised for a comeback. These days, it’s a sadly diminished pioneer sliding inexorably toward irrelevance.
So, again, does Watsa really believe he can take BlackBerry private and recapture some of its former glory? Certainly possible – if he continues to hold the same long-term view of the company he’s always had. “Is [BlackBerry] going to turn around in three months, six months, nine months? No,” he said last year. “But if you’re looking four, five years. … We make investments over four or five years.”
Maybe that’s Watsa’s game here, as well, assuming Fairfax can actually secure the financing it needs to acquire BlackBerry. Or maybe he’s planning to sell it for parts at some point down the line.
Or perhaps he’s simply doing his best to build some acquisition buzz in the hope of minimizing the potential losses stemming from Fairfax’s 10 percent BlackBerry stake. Also entirely possible. Keep in mind that the “deal” that was announced Monday is not binding – Fairfax hasn’t even lined up financing for it yet, and it gives BlackBerry six weeks to seek other bidders. And to some observers, that reads as damage control on a large and fast-declining investment.
As Wedge Partners analyst Brian Blair told AllThingsD, “Watsa is trying to salvage his 10 percent investment in the company and create a backstop while other potential investors hopefully bid it up. The best evidence of this is that six week due-diligence period and the fact that they are able to shop themselves around in the meantime.”
Fairfax Financial did not respond to request for comment.