BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) reported on Monday that it had entered into a letter of intent with a consortium led by Prem Watsa’s Fairfax Financial, which is its largest shareholder. That deal is worth $9 a share if it goes through, but is that too much or too little? According to Evercore analysts Mark McKechnie and Zachary Amsel, it is just the right amount.
Will BlackBerry’s deal actually close?
They believe that the $9 a share purchase price includes $4 a share for the net cash BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is expected to have by the end of fiscal year 2014. It also includes $5 a share for the company’s patents and its recurring enterprise services business. The total offer amounts to $4.7 billion total, or $2.1 billion enterprise net value of the company’s $2.6 billion ending cash balance at the end of August.
The Evercore analysts have maintained their Equal-Weight rating and $8 a share price target on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), pending the closure of the six-week due diligence period. The due diligence period was revealed in the letter of intent announcement and enables the buyout group to examine the struggling company’s financial statements. It also enables BlackBerry to seek other possible offers. The company will pay a termination fee of between 30 cents and 50 cents a share if it does choose an alternate offer. However, the analysts said that doesn’t include a reciprocal termination fee to BlackBerry shareholders if Fairfax is the one that backs out.
Risks to BlackBerry’s buyout remain
Of course even though BlackBerry has received an offer from its largest shareholder, its struggles are not over by a long shot. There are a couple of obvious by key risks that could prevent the deal from happening. Fairfax Financial and the rest of the consortium could back out after completing their due diligence on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB). If this happens, McKechnie and Amsel believe the company’s shares will continue their downward trend.
There is also the possibility (although very slim) that a higher bid could emerge that’s in the $10 to $12 a share range, net of the 30 cent to 50 cent termination fee. The analysts don’t think either of these risks will happen and expect the deal to actually close at $9 a share.
Shares of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) declined more than 2 percent at the NASDAQ in late morning trading.