Fairfax Financial's $4.7-billion deal to purchase BlackBerry is on hold, but the company has agreed to invest in the troubled smartphone maker as it restructures.
BlackBerry plans to raise $1 billion US in capital to see it through a restructuring and to replace its chief executive and some directors, it said in a release this morning.
BlackBerry plans a private placement of convertible debentures, with Fairfax to invest $250 million US and unnamed institutional investors subscribing to the rest.
BlackBerry shares tumbled $1.10 or 14 per cent to $6.67 by mid-day Monday.
The new deal with Fairfax involves CEO Thorsten Heins stepping down and Fairfax CEO Prem Watsa taking on a new title of lead director and chair of compensation.
The title indicates that Watsa, a former member of the BlackBerry board who stepped away this summer when the company announced it was looking for buyers, intends to take an active role in restructuring the company. Fairfax subsequently made a $4.7-billion tentative offer for BlackBerry, with due diligence on the offer to be completed by today.
Thorsten Heins to leave
Heins was named CEO of the company — then called RIM — in January 2012, with hopes that he could restore its dominance in the smartphone market, but those hopes were short-lived. He presided over the botched launch of the Z10 phone, which BlackBerry revealed sold poorly.
The company took a writedown of close to $1 billion on the phones this quarter and has laid off close to 4,500 people. Heins was in line for a $55.6-million severance package if the company was bought, but would have a termination package estimated at $22 million if there was no change of ownership.
The BlackBerry board welcomed today's Fairfax offer as a significant vote of confidence in the company and Watsa agreed.
"Fairfax is a long-time supporter, investor and partner to BlackBerry and, with this investment, reinforces its deep commitment to the future success of this company," Watsa said in a statement.
But that commitment did not extend to completing the buyout proposals. During the due diligence, Watsa said he worked with a consulting company that recommended that taking it private with borrowed money was not the way to go.
"To load this company with too much debt was not appropriate," Watsa said. "We probably could do it, but we decided not to add high yield debt to the company's structure."
Watsa said they backed off completely on a leveraged buyout after getting that recommendation. He said five or six investors had been interested.
Former Sybase CEO to lead restructuring
Leadership in the restructuring is being passed to John S. Chen, former CEO of Sybase Inc., who is to be appointed executive chair of the BlackBerry board
"BlackBerry is an iconic brand with enormous potential — but it's going to take time, discipline and tough decisions to reclaim our success. I look forward to leading BlackBerry in its turnaround and business model transformation for the benefit of all of its constituencies, including its customers, shareholders and employees," Chen said in a statement.
Chen is known for his turnaround of Sybase, a money-losing company that he led into the profitable sector of business software for mobile devices. Sybase was acquired by SAP in July 2010.
Chen said he'll be looking for a CEO with a strong software and services background. He noted that BlackBerry Messenger, the popular messaging application, has been downloaded by over 20 million users since it became available on Google's Android and Apple's IOS platforms.
"I'd like to find somebody to help me monetize that," Chen said.
Chen said a solid team is in place, but it needs focus. "Maybe I can help that. More of a transitional thinking of we're really not in phones but we're in phones for software, for services," Chen said.
Tech analyst Carmi Levy said the failure of the buyout offer raises more questions than it answers.
"It isn't the death knell. Fortunately for the company there are still many other acts yet to play here, but it certainly does add a degree of uncertainty to the company's future," he told CBC News.
"The company's no longer for sale. It has been struggling to fly on its own. It says it's going to continue to do that. The question is, can it?" he added.
Levy believes any firm offer would be welcome.
"I think what this does is it makes $9 a share look hopelessly optimistic and at this point, I think any offer would be work looking at, whatever the number is."
Ross Healy, chairman of Strategic Analysis Corp., said investors are missing out on a bargain in pushing BlackBerry shares into the $6.50 range.
The amount of interest the company won over the past few weeks in its assets, particularly its secure BBM messaging service, should be an indication there is value in the company, he told CBC News.
“I think it needs to be focused on its mobile platform. It's clear that hardware is a dime a dozen,” he said, adding “The area where you make money is having the platform that everybody wants.”
Healy also believes there may be future bids for BlackBerry.
"BlackBerry is still for sale, of course. It is there waiting for somebody to come in and make the move and when I looked at it at $6.50, if that price sticks you'd have to be a fool not to step in because you get your money back and cash and you have a wonderful platform that's the bargain of the century," he said.
BlackBerry had been shopping for other potential buyers, scouring the technology and investment communities for any other interest.
Companies that have considered a bid run the gamut, with reports claiming Facebook, Microsoft and Chinese computer maker Lenovo have all taken a peek at BlackBerry's finances.
One group of potential bidders was BlackBerry co-founder Mike Lazaridis, who filed documents with regulators outlining an interest in trying to rescue the company. Lazaridis was working with former company CFO Doug Fregin and is reported to have backing from Qualcomm and Cerberus Capital.