BlackBerry buyout squashed; new deal yields $1 billion, new CEO

Remember how BlackBerry, the struggling smartphone company, had at last found a savior to buy the company and help it get back on its feet?

Yeah, you can forget all about that.

The company isn’t going to be bought out. Instead, it’s receiving a new $1 billion investment and getting a new CEO.

The Canadian company on Monday announced that Fairfax Financial, the investment group that had planned to lead an acquisition of BlackBerry, has backed out of the transaction. Instead, Fairfax will lead another group of investors to inject $1 billion into BlackBerry in the form of convertible debt.

Fairfax’s original offer, made back in September, was contingent on the investment group finding others to pony up the money to complete the acquisition. The plan, which some analysts criticized as a “fire sale,” would have set a price tag on BlackBerry of $4.7 billion.

But Fairfax didn’t plan to increase its stake in BlackBerry beyond the 10 percent it already owned. According to published reports following the announcement of the original deal, the investment group had struggled to find financing and other investors to go in with it on the acquisition.

But Fairfax head Prem Watsa told the Associated Press that the company abandoned the buyout effort after hearing the advice of its hired consultants. The consultants envisioned the company being taken acquired via borrowed money, a move that wouldn’t be “appropriate,” they told Wasta.

“We probably could do it, but we decided not to add high yield debt to the company’s structure,” he said.

As part of the new deal, which is expected to close in two weeks, BlackBerry will issue 6 percent notes that can be converted into stock at $10 a share. Fairfax will provide $250 million of the investment. The investment group will have the option to purchase $250 million more in debt from BlackBerry within 30 days of the close of the transaction.

The $10 conversion price may seem a bit optimistic. Not only is it above the $9 a share bid that Fairfax initially made, but it’s well above the current trading price of BlackBerry stock. The company’s shares closed at $7.77 on Friday. And investors thought so little of the new investment on Monday, that they sent the stock down $1.29, or nearly 17 percent, in recent trading.

As part of the new deal, BlackBerry CEO Thorsten Heins is on his way out, to be replaced, at least on an interim basis, by former Sybase CEO John Chen. BlackBerry, however, is on the lookout now for a permanent replacement.

Heins took over BlackBerry in January 2012. At the time, the company was already slipping, having failed to counter Apple’s iPhone and smartphones based on Google’s Android.

Heins presided over the long-awaited launch, earlier this year, of the company’s new BlackBerry 10 operating system and devices based on it. But consumer interest in new products has proven disappointing. BlackBerry’s share of the smartphone market has plunged as its sales have fallen.

Meanwhile, the company has posted massive losses, has announced massive layoffs and its stock is now off nearly 60 percent since Heins took over.

Photo, of outgoing BlackBerry CEO Thorsten Heins, courtesy of BlackBerry.


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