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The full-page advertisement on page A5 of the Oct. 15 issue of The Washington Post tells an important story about BlackBerry and its desire to remain intact as a company. There’s been a great deal of speculation about the probable outcome of the company’s announcement that it would entertain strategic offers. One such offer has come from Fairfax Financial Holdings in a $4.7 billion deal that would take BlackBerry private.
Unfortunately for BlackBerry, the word is also out that companies including Google and Cisco may be considering offers for part of the company, effectively breaking the company up. As a result BlackBerry would cease to exist as a phone maker and core of a mobile technology ecosystem. Once that got out, BlackBerry’s partners and customers started a process known as “freaking out.” Clearly, damage control was in order.
That damage control took the form of social media announcements as well as an open letter to anyone who might care about BlackBerry. In its corporate blog, the company said that its customers and partners could count on BlackBerry to be there for them in the future and made a commitment to stay in business to serve its customers.
“Our customers are the heart of our success and we are laser-focused on continuing to serve them,” the company said in its blog. “BlackBerry is for people who value productivity as their top priority during the day. Our fans are proud power users who are always on the go and striving to achieve. They work hard. They play hard. They make decisions. They get things done. They change business, markets and the world they live in. BlackBerry will not waiver from our commitment to them.”
No question that this is a strong sentiment and an indication that the company could intend to reject offers to break it up and sell its components piecemeal. The Special Committee that is examining offers certainly has the ability to move forward with Fairfax as planned, but the next question may be whether it can do so in reality.
The problem with letters of intent, which is what BlackBerry and Fairfax Financial Holdings have jointly signed, is that they are not promises set in stone. They’re conditional. On the one hand, Fairfax Holdings first has to complete its due diligence, which it plans to do early in November. Only when that step is accomplished can the two sides decide whether it’s financially feasible to make a deal.
On the other hand, the Special Committee is required to consider other offers it may receive for purchase of the company.
BlackBerry Pleads With Customers, Partners for Patience, Confidence
One such offer, widely reported to be from BlackBerry founders Mike Lazardis and Douglas Fregin, could be seen as a viable alternative to the Fairfax offer. Or the founders could join Fairfax in taking the company private.
However there are limits to what potential buyers the Special Committee can work with. BlackBerry is a Canadian company, and Canadian laws would effectively limit the sale of BlackBerry to a foreign company. In addition, BlackBerry’s secure servers are located in Canada, and Canadian laws also limit foreign ownership of those assets.
The limits on who can take over ownership of BlackBerry effectively eliminates a number of takeover scenarios. So while Google, for example, may pass muster on buying part of the company, it’s unlikely that Google or any of the other companies frequently listed as buyers of BlackBerry could actually do so under Canadian law.
Instead what seems most likely is that Fairfax Holdings in coordination with Lazardis and Fregin, will band together to raise the billions of dollars necessary to buy the outstanding shares of BlackBerry. This may be slightly easier than it might seem because the principals already own about 20 percent of the company. Accomplishing this would require the participation of major Canadian investors who see potential for long-term profits.
While it may seem unlikely that the purchase could actually happen that way, it’s important to remember that despite its woes of late, BlackBerry is actually in very strong financial condition. The company has about $2.5 billion in cash and no debt. By cutting costs, which the company has already planned to do through a reorganization, BlackBerry can continue on for a very long time without being profitable.
During that time, BlackBerry has the opportunity to reform its operations so that they make sense. Currently the company is taking a shotgun approach by trying to appeal to any market where it could conceivably make money, including those that are outside its core enterprise arena. To some markets BlackBerry is a secure communications device with a network to back it up. But to other markets the company is presenting itself as a game machine and to others as a social networking device.
At some point, the company will need to define what it really is and focus on the markets with the most potential for profit while reducing its attention to markets that simply don’t make sense. For example, it remains unclear why a mobile device maker with roots in security and productivity would be bringing out a vast collection of games while ignoring major productivity apps. Regardless of the rationale, BlackBerry needs to decide which markets have the most potential. Without that focus, the company is going to have trouble making its comeback.