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The rise and fall (and rise?) of Blackberry – the story that just won’t quit

The rise and fall (and rise?) of Blackberry is a story that has gripped our attention, and not just because it affects so many Canadians.

It’s because this tumultuous story has more plot twists than a thriller.

Yesterday the company stole the spotlight yet again with news that its future might not be dashed after all, thanks to a home-grown financial rescue package that took everyone by surprise.   Here’s why it’s important:

A consortium led by Canada’s Fairfax Financial Holdings offered to buy Blackberry for $4.7 billion, conditional on due diligence and regulatory approval.

Fairfax is already BlackBerry’s biggest shareholder, holding 10 percent of shares. (Fairfax has been, um, stocking up: it held only 2.2 percent in late 2011.)

The deal offers to buy up the remaining 90 percent of shares for $9 apiece, slightly more than they were worth when the news broke. Shares bounced up 10% on the news, closed at $9.08 by day’s end, and dropped the next morning, leading to more nailbiting.

Many Canadians are economically invested in Blackberry, as consumers, workers and investors. But there’s a broader emotional investment too: as a company that rose to global prominence from its humble garage beginnings in Waterloo, but stayed rooted in that community, it’s “our” tech darling.

Blackberry made us proud. And it made us better off.

But investors with financial skin in the game have watched aghast as Blackberry’s stock price has trended like a falling knife.

At its peak (June 2008), Blackberry traded at $149.90 a share. Last fall it hit $6.10.  The long-overdue launch of a suite of new products starting in January prompted only a tepid rally.

Yesterday’s deal is equal to just 6 percent of Blackberry’s former peak value, but the announcement still came as a relief for many, putting a floor under what some analysts predicted would be a freefall in the coming months.

But it’s not a done deal. Yesterday’s announcement simply made public a letter of intent that expires in six weeks, November 4, giving Blackberry time to sniff out interest from other potential buyers and Fairfax time to drum up the financing for the deal, which is not finalized.

Dubbed a “take-under” because of the low valuation of the share price, the deal may have to be sweetened.

We don’t yet know who else is part of the consortium. Bank of America and Bank of Montreal are involved, possibly providing debt financing for smaller players. But Fairfax is leading this game.

For people not familiar with the business world, Fairfax is another Canadian success story: a publicly traded company mostly focused on insurance.  But under the leadership of founder, CEO and Chair, Prem Watsa, the company has extended into a veritable empire, growing to $37 billion in assets ranging from TorStar to The Brick to William Ashley to Sporting Life and a huge restaurant chain. 

Watsa has been called Canada’s Warren Buffett. They’re both famous for taking the long view, investing in value and making prescient calls on movements in markets.

As Watsa assembles the consortium, rumour has it that the Canada Pension Plan Investment Board and Ontario Teachers’ Pension Fund are interested; and so is Mike Lazaridis, the man who founded the company in 1984 and one of Canada’s wealthiest people.

This made-in-Canada deal is a gift for the feds, too, ensuring regulatory approval doesn’t get mired in political controversies over foreign ownership. Fur could fly if it got sold down the river, disappearing from our economic landscape only to reappear bigger and better someplace else.

But you’d be forgiven if you thought the company was just going to disappear altogether, trapped in a death spiral of its own making.  Just in the past few days, Blackberry announced it was writing off losses of almost $1 billion on unsold phones, and cutting its staff by a jaw-dropping 40 percent. That comes on top of earlier cuts. Its global workforce will be halved in 2 years.

These latest developments don’t scream “growth potential”.

Take another look.

Blackberry is sitting on pure gold: the largest portfolio of patents of any Canadian company, and $2.6 billion in cash currently line its coffers. It’s also one of Canada’s biggest private sector spenders in R&D. There are likely lots more goodies in the pipeline.

Of late, the company has been plagued by short-sellers making money from its quarterly reports by trying to cash in on its failure. Taking it private will save its value, and permit re-alignment beyond the hungry watch of the vultures.

Of course there are plenty of management issues inside the company, but don’t dismiss the power of the market to sink a ship that is seaworthy.

Prem Watsa knows all this. He was on Blackberry’s board until recently, and has more familiarity with its essential worth than most. A shrewd businessman, he’s not gambling much. Putting the offer in context, he’s spending less on buying Blackberry than Apple sold in new phones this weekend.

Speaking of Apple: it’s not the slam dunk you might think.  Just yesterday, there were reports that the security systems in its latest phone had been hacked in two different ways. First, you could bypass a locked screen by using Siri to get in. And within hours of hailing its breakthrough security innovation, the fingerprint scanner, someone had figured out how to pick up a fingerprint and replicate it. That’s terrible news. You can change a password any number of times if you are hacked. You can’t change your fingerprint.

But that may not be enough give Blackberry a fighting chance to become a serious player again in a consumer smartphone market that is dominated by iPhones (just 13 percent of the market) and Androids (79 percent of the market).

So it’s a legitimate question: does this company still have legs on the global stage?

Thus far, it continues to dominate the business market, and that’s where it plans to put its focus – on “enterprise” players (that could be public or private enterprise). At just 3 percent of the market, it’s small potatoes in the scheme of things.

But remember that’s exactly how Blackberry wowed the world originally: Smartphones became a consumer item as spillover from use by businesses,  governments, and the military.

And the Apple story underscores an important fact: Blackberry was and is the global leader for secure calls, texts and emails. Cybersecurity is top of mind for many these days.

Blackberry may not promise to shield you from NSA or CSIS, but there are many other ways your privacy can be hacked. People value both security and convenience. You can’t rule out a comeback for the company.

So don’t be surprised if Lazaridis and Co. pull a Lazarus and revive Blackberry’s fortunes.

Instead of fading to black, Canada’s tech darling may once again see its star rise.

 

This column is based on my Metro Morning column of September 24, 2013.  

Enjoy and share:

Comments

Comment from Sol
Time: September 25, 2013, 4:46 pm

As a long-time BB user who recently switched to iPhone, I have to say: I miss the keyboard.

Can’t really speak about the question of apps or the long-term financial or investment implications, but it’s a Canadian company and I’d like to see it succeed.

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