Fairfax offer sparks little optimism from BlackBerry analysts, investors

A highly conditional takeover offer put forward by one of BlackBerry’s largest shareholders has left several analysts and traders with little confidence that it will spark a bidding war for the assets of the beleaguered smartphone company.

Instead, there’s a 60 per cent probability that investment firm Fairfax Financial and a consortium of financiers will emerge the winners of a $9-per-share offer that was outlined in a letter of intent earlier this week, said Catharine Sterritt, risk arbitrage strategist at Scotiabank.

“I actually regard this as a quality proposal because it is Fairfax,” she said in an interview Tuesday.

“It’s not a fly-by-night hedge fund that’s just parachuting in a letter. This is someone who genuinely has a business reputation, and they have a very large publicly traded company that matters in our marketplace.”

The tentative agreement to take BlackBerry private has numerous caveats, which has suggested to some that Fairfax expects the Waterloo,-based company to carve out a separate deal for all — or part — of its operations within the next nine months.

Others have pointed out that if somebody wanted to buy BlackBerry, they would have done so over the past year and a half.

“The market is realizing there’s no real buyer out there,” said Neeraj Monga, an analyst at Veritas Investment Research Corp.

“If a financial sponsor (like Fairfax) has to end up buying a technology company, in a case where everybody thought there might be massive value in the intellectual property, this suggests there might not be.”

If BlackBerry does find another suitor, Fairfax gets a cushy payout of at least US$157 million as a break fee for its troubles — and will reap even more money if a deal is etched out sometime after early November, which is when Fairfax is supposed to sign a definitive agreement for the transaction.

But failing that, Fairfax has protected itself in other ways that would allow the firm to pull back its offer if it’s not satisfied with due diligence on BlackBerry’s finances or if it doesn’t receive the financial backing it needs.

BlackBerry investors appear to be lukewarm on the Fairfax offer, partly because most of them come out as financial losers regardless of the outcome. The $9 per share offer for the company is a tiny fraction of the value that many small investors bought into the stock. BlackBerry shares touched their all-time high of $149.90 in June 2008.

On Tuesday, shares of the company fell to $8.78, a decline of 3.3 per cent on the Toronto Stock Exchange, and below the proposal made by Fairfax.

CIBC analyst Todd Coupland remains optimistic that the Fairfax offer marks the starting point for other potential acquirers that could drive the price as high as $12 a share.

“Our view is a takeover for BlackBerry is inevitable and that it should come at a higher price,” he said, noting that the calculation was made using a “sum of the parts” analysis of the company.

“Interested parties that could bid for Blackberry include other smartphone (manufacturers), carriers interested in the Blackberry network, private equity and the co-founder Mike Lazaridis as part of a consortium.”