Yesterday saw Fairfax Financial Holdings Ltd (OTCMKTS:FRFHF) (TSE:FFH) submit a takeover agreement to BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), according to sources.
BlackBerry’s record available to potential buyers
It is being rumored that the Canadian firm may not be alone in its quest to take over the fledgling smartphone maker. It’s believed that Cerberus Capital Management of New York is looking to sign a non-disclosure agreement in order to review confidential BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) records that would only be made available to potential buyers. According to unnamed sources, Cerberus in not part of the consortium that Fairfax Financial Holdings Ltd (OTCMKTS:FRFHF) (TSE:FFH) is putting together, and would suggest that a rival bid is a distinct possibility. Cerberus, a buyout firm that specializes in failing companies, is no stranger to distressed Canadian companies, having bought parts of Teleglobe Inc. They were also involved in the restructuring of Air Canada over ten years ago and were outbid in an attempt to acquire Hudson’s Bay Co (TSE:HBC) seven years ago.
Last week, it was suggested in a number of news outlets that BlackBerry may be in worse shape than originally thought—something that seems to have sparked interest from Cerberus.
Partners showing interest in Fairfax
Its interest comes despite revelations by the company that its business is in even worse shape than it disclosed last week. This speculation stems from the amount of interest that Fairfax Financial Holdings Ltd (OTCMKTS:FRFHF) (TSE:FFH) has received from potential partners in the last week. This includes an approach from BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s former CEO, Mike Lazaridis, who remains one of the company’s largest shareholders.
Sources close to discussions regarding Fairfax Financial Holdings Ltd (OTCMKTS:FRFHF) (TSE:FFH)’s conditional USD $9-a-share plan for a takeover of the company say the insurance and investment firm led by Prem Watsa has been surprised by the number of overtures from potential partners it has received in the past week.
BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) said in a statement that “we do not intend to disclose further developments” until a deal is approved.
This buyer interest came on the heels of BlackBerry’s filing of its full fiscal second-quarter financial statements late Tuesday, after disclosing last week that the company lost $965-million in its second quarter, due to a major write-down of unsold smartphones.
BlackBerry losing market
There was little in the filing that suggested BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) was losing business in all segments and geographical regions.
“The intense competition impacting the company’s financial and operational results that previously affected demand in the United States market is now being experienced globally, including in international markets where the company has historically experienced rapid growth,” BlackBerry said in a regulatory filing. Even in Indonesia, one of its most promising markets in recent years, quarterly revenue was $160-million, down 35 percent from the same period a year ago.
This includes a steep drop in its home market; revenue in Canada was down 60 percent year over year.
The company sold a meager 1.7 million of its new BlackBerry 10 phones, a number that represents less that half of consensus estimates.
BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has dropped the price of its touchscreen Z10 phones to little interest.
Enterprise service business failing
The company also dismayed investors when it reported that its enterprise service business was also failing. That business was believed by many to be one of the saving graces of the Canadian company. Increased competition, according to the filing, “has resulted in a slower-than-anticipated rate of adoption” of the platform by its customers. In addition to competition, the company said its sales were being affected by concerns over the company’s future.
The company also expects to lose more than originally anticipated from restructuring charges during the ongoing fiscal year.
“There’s nothing positive from an operational standpoint” in the financial statements, said Veritas Investment Research analyst Neerjaj Monga.
Despite the filing’s grim outlook, there are positives for potential buyers. The company has significantly lowered its outgoings to suppliers given slowed sales. Additionally, the company may be looking to sell some of its 20 Waterloo-area properties. The company remains debt free and has $2.6 billion in cash and equivalents.