BlackBerry deal bad for investors, won’t help company, say critics

BlackBerry’s planned deal to go private may have saved the company from its downward spiral, but it hasn’t appeased all of the company’s critics.

One former shareholder criticized the company’s management and board for not simply shutting down its business and distributing its cash to shareholders earlier, before the company’s situation grew as dire as it has. Kevin Stadtler, a hedge fund manager who sold his BlackBerry stock in June, questioned whether the deal BlackBerry announced on Monday, to sell itself to its largest shareholder, Fairfax Financial, will really benefit the company’s investors as a whole.

“It’s a fire sale,” Stadtler told Forbes. “Ultimately the board of directors and the executives are responsible to maximize shareholder value and how have they maximized value by this transaction?”

The $4.7 billion that Fairfax has agreed to pay for BlackBerry doesn’t include the $2.6 billion the company has in cash and short-term investments. Subtracting the cash, Fairfax is basically valuing BlackBerry at $2.1 billion.

That’s a far cry from the company’s salad days just a few years ago. The company reached its zenith in terms of valuation in 2008, when its stock traded at more than $148 a share, giving it a market capitalization of more than $80 billion.

The deal isn’t complete; Fairfax hasn’t finalized funding and BlackBerry has the right to shop for other offers. But the market views that as unlikely. BlackBerry’s stock is trading below the value of the deal, a sign that investors are worried that no one’s going to outbid Fairfax and that the Fairfax deal might fall apart.

Stadtler isn’t alone in criticizing the transaction, in which Fairfax plans to acquire BlackBerry for $9 in cash per share. Ovum analyst Jan Dawson said that the transaction doesn’t solve BlackBerry’s underlying problem, namely that it lacks and has lacked a long-term strategy to respond to the rise of Apple’s iPhone and Google’s Android. Meanwhile, the company’s announcement last week, as part of a massive restructuring involving the firing of 40 percent of its workers, that it would abandon its consumer device business likely means the “death toll” for the company’s smartphone line, Dawson said.

“We’re likely seeing the beginning of the end for one of the most iconic brands in mobile technology,” Dawson said.

BlackBerry’s former CEO Jim Balsillie famously shrugged off the potential threat from the iPhone when Apple’s device was unveiled in 2007. It took the company until earlier this year to update its smartphone operating system to respond to the challenge of the iPhone and Google’s Android. The new phones based on BlackBerry 10 got mediocre reviews (including from yours truly) — and sold poorly. The company announced a $900 million charge last week related to unsold inventory of the new phones.

But even if the company had responded sooner or more strategically, it wouldn’t have helped, writes Wired’s Marcus Wohlson. After the iPhone, there’s been little real innovation in the smartphone industry and little likely to come, Wohlson writes. So the best BlackBerry could have hoped for was to more quickly develop a phone that emulated the iPhone, but even then, it wouldn’t have stood a chance to compete against Apple.

“No one was going to out-Jobs Steve Jobs,” Wohlson says.

 

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  • sd

    I think CEOs of somewhat-legendary companies get to their corner offices possessing a certain hubris that they can turn the ship around no matter how badly it’s foundering.

    The current management of Blackberry must be recalling the days when Apple stock was trading in the low teens and plotting how they can structure a turnaround like that. But they are, as Wohlson points out, not Jobs. And I don’t think they’ll succeed. Even in the dark days, Apple had its loyal and influential fans. Blackberry hasn’t had many of those for years.

 
 
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