Some Thoughts About The Fairfax Financial Purchase of BlackBerry

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BlackBerry has received a Letter of Intent to purchase from Fairfax Financial, a financial holding company based in Toronto, Ontario, which is engaged in property, casualty, and life insurance and reinsurance, investment management, and insurance claims management. If and when the purchase goes through, it should provide BlackBerry the ability to restructure and position itself better in the market, without having to fend off short term concerns of quarterly financials or shareholder demands.

What’s interesting about this Letter of Intent to purchase, is that it is exactly that, an intent, not a completed purchase. Fairfax is actually still looking for the cash to complete the deal.

A great quote from Mark McQueen regarding the Fairfax Financial situation:

Fairfax may well be “highly confident that the consortium can fund the full amount of the consideration and all related transaction fees and expenses”, but that’s not the same thing as offering a fully-financed bid. In my life I can’t recall a ~$5 billion cash takeover bid being announced without the financing being lined up in advance. Often, the Regulators don’t allow such a tactic. According to Fairfax, they are working with Bank of America and Bank of Montreal to line up some debt financing — I’m guessing $1 billion tops — although the insurer has no plans to put in another penny beyond rolling the company’s current 9% BBRY stake (valued around $460 million).

The deal still has another 6 weeks to get finalized during due diligence with other suitors possibly making a bid but this seems the most likely route.

So what does this deal, if it’s fully completed, mean for BlackBerry and it’s users? There’s a very big hint in the press release in a statement from Fairfax CEO Prem Watsa.

Prem Watsa, Chairman and CEO of Fairfax, said: “We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees. We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.”

The statement signals a significant change in company direction. By focusing on “delivering superior and secure enterprise solutions”, it could mean that products such as BlackBerry Balance and BES will become more important, while consumer-facing products such as ScoreLoop, could be phased out entirely. It’s all speculation at this point but it’s still interesting to think about.

What would BlackBerry be like if a company that really wanted to be a player in the smartphone industry, such as Dell, were to purchase BlackBerry? In this scenario, perhaps BlackBerry would double-down on its consumer efforts and use the funds to weather the storm as the smartphone market grows.

There is still a hole in the consumer market that BlackBerry could potentially fill from a consumer perspective. While iPhone 5S sales have been amazing, there does seem to be some blowback from iOS 7 and the repetitive nature of Apple product launches. Apple also managed to launch a thumbprint scanner at the height of consumer privacy concerns.

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Android, while it is definitely giving competition a run for its money in terms of OS marketshare, is highly fragmented and a nightmare in terms of security.

Either way, there’s interest in keeping BlackBerry around for the foreseeable future, but in what form is yet to be fully understood.