When BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) announced that it signed a letter of intent to be bought out on Monday, some investors were undoubtedly breathing a sigh of relief. The offer is worth $9 a share to shareholders or $4.7 billion. And it gets even better than that. A consortium led by Fairfax Financial, the company’s largest shareholder, made the offer. So it’s almost sure to close, right?

Maybe not, according to Citi analysts.

BlackBerry

Will BlackBerry pass due diligence?

Citi analyst Jim Suva issued a research note to investors this morning with his concerns about the deal. Of course the deal is contingent on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) passing the due diligence check being done by the consortium. The group will go through the company’s financial statements with a fine-tooth comb, looking for signs of danger.

The due diligence period is expected to be complete by Nov. 4, and the company is able to seek other potential suitors during that period. It will pay a fee of between 30 cents and 50 cents a share if it takes a different deal than the one offered by Fairfax.

BlackBerry burns through cash

Last Friday when BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) preannounced its latest quarterly results (the full report is expected this week Friday), the company said its cash balance was $2.5 billion. That values the company at $2.2 billion, net of cash. But what BlackBerry didn’t say on Friday was how much of its net cash is domestic and how much of an impact it could see from repatriating the cash to shareholders.

Suva notes that the company burned through $500 million during the August quarter and that more cash burn is ahead due to severance payments which will likely come with the 4,500 jobs that the company will eliminate. As a result, he says there is a risk to the company’s cash balance.

BlackBerry deal still needs financing

He also said that in spite of Fairfax Financial’s current 10 percent stake in BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), the deal still requires debt financing. The company did not reveal any information about other members of the buyout group, including any equity stake they might have. Also there is no information about possible deals for debt financing.

Suva believes that obtaining financing for the deal could be a big problem because of the severity of BlackBerry’s “business fundamentals deterioration.” If financing cannot be obtained for the deal, then the transaction may not close. He believes that in making a bid, Fairfax is simply trying to encourage others to make a bid, but he doesn’t think anyone will.

Citi maintains Sell rating on BlackBerry

Suva maintained his Sell rating and $7 per share price target on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) because the $9 per share offer represents less than 10 percent upside from current share levels. He notes that there is a real risk that financing for the deal will not be obtained and that short interest in the company is extremely high at around 35 percent. He said this could mean a high level of volatility in BlackBerry shares as investors who are shorting it move to cover.