BUSINESS

BlackBerry Going Private? It's A Tough Proposal, But It Could Be Done

08/09/2013 07:02 EDT | Updated 10/09/2013 05:12 EDT
AP
Thorsten Heins, president and CEO at BlackBerry speaks at a conference, Tuesday, May 14, 2013, in Orlando, Fla. (AP Photo/John Raoux)
TORONTO - BlackBerry shareholders reacted strongly on Friday to rumours the smartphone maker's chief executive and board of directors could take the company private, but such a transition would prove wildly expensive.

The Reuters news agency reported Friday that several sources, which it didn't identify, said a going-private idea was being considered by management, but that a deal isn't imminent.

Privatization of the Waterloo, Ont.-based firm might seem ideal for executives in BlackBerry's board room, as it would shield them from the persistent scrutiny of shareholders and analysts, but it's a longshot.

At its current share price, BlackBerry going private would cost somewhere between US$5 billion and $7 billion, and those are the more conservative estimates.

Others say the value could be closer to $10 billion — or even higher than its current market price.

"Many of the shareholders are looking for a significant return above this level," said Tom Caldwell, chairman of Caldwell Securities Inc.

"Taking it private would, to some degree, be construed as taking advantage of existing shareholders. I don't know that shareholders would think well of an $11- or $12-per-share bid for the company."

Near the peak of its stock price in 2008 BlackBerry (TSX:BB), then known as Research In Motion, was valued at about $84 billion. Over the past few years, the company's stock has suffered a meteoric fall as other market players like Apple's iPhone and smartphones on the Android operating system grew in popularity.

On Friday, BlackBerry shares gained 5.6 per cent, or 54 cents, to $10.05 on the Toronto Stock Exchange. In New York, the company's stock (NASDAQ:BBRY) closed ahead 53 cents to $9.76.

Many of BlackBerry's loyal shareholders have demonstrated their patience with the company's hopeful recovery.

About a year ago, FairFax Financial Holdings (TSX:FFH) nearly doubled its stake in the smartphone maker to 51.9 million shares. Its founder Prem Watsa said around that time he expected BlackBerry's turnaround would take several years.

For a privatization to happen, the company needs to find several other large private equity partners who share a similar vision, and would be willing to fork over a huge chunk of money for a company teetering on an uncertain future. The smartphone firm itself has roughly $3 billion of cash on its hands that it could add to the pot.

"A going-private deal or (a merger) is something the company absolutely needs," said Vic Alboini, chairman and CEO of Jaguar Financial, who for several years has urged BlackBerry to sell itself.

One of the first places BlackBerry would likely turn for partnership opportunities are major domestic pension operators like the Canada Pension Plan Investment Board and the Ontario Municipal Employees' Retirement System.

According to the Reuters report, BlackBerry has already talked to private equity firm Silver Lake Partners about a potential collaboration. Silver Lake is in the midst of trying to take U.S. computer company Dell Inc. private, a decision that founder Michael Dell said was to keep his company's attempt to recover marketshare further away from public scrutiny and investor demands for quarterly improvements.

If BlackBerry follows a similar path, it will be able to take three or four years to chart its recovery, said Sameet Kanade, an equity research analyst at Jacob Securities Inc.

"As a public company, three to four years is a lifetime," he said. "It may be the best possibility."

"We remain cautious," Kanade added.

"Right now this is a trader's market, and this is a trader's stock. It doesn't trade on fundamentals anymore."

BlackBerry has declined to confirm whether its board has changed gears on the company's future.

"Sorry, but we cannot comment on rumours or speculation," a media contact said in a brief email seeking comment.

At the company's annual meeting last month, CEO Thorsten Heins unveiled a three-stage plan to return to profitability. It included pushing ahead with new products yet to be unveiled, opening the BlackBerry Messenger service to other phones and focusing on corporate customers.

"We are still in the midst of a major, complex transition of this company, and like most of these transformations ... progress can be volatile,'' Heins said at the time.

"BlackBerry will pursue every opportunity to create value for shareholders,'' he added.

Heins replaced company co-founder Mike Lazaridis and Jim Balsillie amid investor unhappiness with the company's stock price and widespread criticism over delays in bringing out products to compete against Apple and other challengers.

BlackBerry's board, along with Heins, have also been urged to make strategic moves such as splitting up the business into different companies or selling it outright. Still, BlackBerry has continued to operate as an independent company.

Also on HuffPost

BlackBerry Q5