Samsung Rumored to Be Eyeing a $7.5B BlackBerry Acquisition

Talks so far have centered around a $7.5 billion buyout offer for BlackBerry by Samsung, according to a report. Both companies so far are denying the potential move.

Samsung is rumored to have made a $7.5 billion acquisition offer for BlackBerry in a move aimed at obtaining key patents and diving deeper into enterprise markets for its products around the world.

The potential BlackBerry buyout by Samsung, reported Jan. 14 by Reuters, is based on information from sources who spoke privately about the matter. Reuters said it also has seen some documents that describe such a move between the two companies. Under the rumored deal, Samsung would pay $13.35 to $15.49 for each BlackBerry share, according to the report.

Both Samsung and BlackBerry almost immediately denied the reports.

In a statement, BlackBerry said it "has not engaged in discussions with Samsung with respect to any possible offer to purchase BlackBerry." A Samsung spokeswoman told Reuters that "media reports of the acquisition are groundless."

Despite those denials, BlackBerry shares rose by 28 percent late Jan. 14 after reports of the merger rumor first circulated, according to an article by MarketWatch.

What the Deal Could Mean

Charles King, principal analyst for Pund-IT, told eWEEK in a Jan. 15 interview that the rumored merger "is an interesting idea" despite the flurry of denials from both parties. "Frankly, I think a deal could be good for both Samsung and BlackBerry," he said. "And the fact that the companies had entered into a security-focused partnership last year suggests they have been working closely together already and that maybe there could be more ways to work together. I think that's probably the case."

Despite BlackBerry's fall from dominance in the enterprise smartphone world in recent years, the consensus in IT and the business world is that the company "continues to deliver the best security in the industry," said King. "It's one of the reasons that world leaders like President Barack Obama and others use BlackBerry."

The acquisition of BlackBerry "could give Samsung a very attractive entry point into a group of very attractive customers and patents," he said.

Rob Enderle, principal analyst at Enderle Group, told eWEEK that he could see BlackBerry wanting to remain independent, but that such a merger "could be invaluable" to Samsung. "Samsung has been trying to get [the Tizen OS] off the ground but has had trouble attracting developers, and BlackBerry has a larger number of these," he said. "BlackBerry's patent portfolio is second to none and would help Samsung [compete] better against Apple and Microsoft. "Finally, Blackberry's QNX is deeply embedded in automotive, and a parts builder like Samsung could see that as a market expansion opportunity. Samsung still builds and sells things like processors to other firms like Apple, and cars consume a lot of parts like this. "

A BlackBerry acquisition would also give Samsung "much stronger footing" to go toe-to-toe with Apple in the enterprise smartphone wars, Enderle said. At the same time, there is also the risk of BlackBerry becoming a money pit for Samsung if the deal happens. "It really depends on how Samsung does the acquisition and big ones like this are very difficult to do," he said.

A Samsung takeover "could help Blackberry appear far stronger and Samsung could provide a much more powerful product set with more choices, better integration with Samsung's other offerings [wearable devices] and far better funded marketing organization all of which would make Blackberry products appear far more attractive," said Enderle.

A Samsung buyout of BlackBerry could also be more likely than recent rumors that pointed to inquiries from Chinese-owned Lenovo to try to buy BlackBerry, said Enderle. Those inquiries were blocked due to security concerns. "Korea doesn't have that same problem, and Samsung has a far greater need at the moment," he said.

Both Companies Are Under Pressure

For both companies, which have been moving through stormy individual financial positions in recent years, a potential merger would certainly be intriguing.

Samsung, the world's dominant global smartphone and mobile phone maker, has been hit in recent years by growing competition from Chinese manufacturers who are producing phones with lots of features at very low prices, which has been cutting into Samsung's profits. In China, competitors, including Lenovo, Xiaomi, Huawei and other local brands, have strong followings—and the support of the Chinese government, which owns the wireless carriers. The huge success of Apple's latest iPhone 6 models around the world hasn't been helping Samsung either.

In October 2014, Samsung's net profits fell to $4 billion in the third quarter ended Sept. 30, from $7.8 billion in the same quarter last year, according to a recent eWEEK report. The company's lower net profit in the latest quarter was also a 32 percent drop from $5.9 billion in the second quarter of 2014. Total third-quarter revenue fell 9.2 percent from $49.7 billion in the second quarter.

Those numbers led Samsung to announce in November 2014 that it will be reducing the number of smartphone models it offers for sale around the world by about 25 percent to 30 percent as it works to right its bottom line after several disappointing earnings periods.

The product line reductions came less than a month after Samsung reported third-quarter sales of $45.1 billion, down 19 percent from $56 billion during the same period last year.

Despite its recent sales troubles, the Korean company continues to lead the global industry in both mobile phone and smartphone shipments, with 78.1 million devices and a 23.8 percent market share for the third quarter, compared with 39.3 million devices and a 12 percent market share by its next-closest competitor, Apple, according to recent figures released by IDC.

At the same time, BlackBerry has been dealing with its own difficult financial matters as well for the last several years after falling from the pinnacle of the enterprise smartphone world. In December 2014, BlackBerry's fiscal 2015 third quarter earnings report showed revenue continued to fall in the third quarter, down 13.43 percent to $793 million from the prior quarter. The good news for the period was that its losses fell 28.5 percent to $148 million.

The $793 million in revenue is a drop from the $916 million posted in the company's second fiscal 2015 figures, which were reported in September 2014. The $148 million loss is an improvement from the $207 million loss that was posted at that time. The company's per-share loss was 28 cents, compared with a loss of 39 cents per share in the second quarter.

BlackBerry launched its latest new smartphone, the $449 BlackBerry Classic, Dec. 17, just a few months after unveiling its $599 BlackBerry Passport smartphone for enterprise users back in September.

As 2015 begins, BlackBerry appears to be hard at work as it seeks to rebuild its reputation and market presence after some difficult years. BlackBerry's fall from dominating the enterprise smartphone market has been swift and stunning. The company spent much of 2012 and 2013 trying to shake off the image that it was finished, especially compared with its presence five years earlier when its devices were the "enterprise gold standard" for mobile business communications, according to earlier eWEEK reports. In early 2006, half of all smartphones sold were BlackBerry models. By 2009, though, its share of the global smartphone market was down to 20 percent.