BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) made a surprise announcement today that a consortium of investors led by Prem Watsa’s Fairfax Financial Holdings Ltd (TSE:FFH) offered to take the company private for $4.7 billion or $9.per share.
Prior to the announcement, the stock price of the struggling smartphone manufacturer declined to as low as $8.23 and the trading was halted briefly. The stock ended the trading day at $8.82 per share.
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BlackBerry needs to implement drastic changes
An analyst at RBC Capital Markets also released a report today indicating that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) needs to implement drastic changes, and it is critical for the company to save cash because it is deteriorating rapidly. The research firm suggested that it should narrow its focus and transform itself into a secure mobile solutions provider.
Allen Nichols, analyst at RBC Capital Markets said the stock price of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will decline to as as low as $5 per share in a worst case scenario. He downgraded his rating for the stock from sector perform to underperform.
BlackBerry needs to sell some of its assets
He said BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) needs to sell some of its assets at a lower price to fund its operations.
In his note to investors, Nichols noted the “unfortunate situation” of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) given the fact that it will potentially write off almost $1 billion worth of unsold BlackBerry 10 devices. The Canadian smartphone manufacturer failed to attract its existing clients to migrate to its new smartphones and to encourage new consumers to purchase the products.
BlackBerry will “run out of cash”
Nichols projected that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will “run out of cash” over the next 12 to 24 months if it will not implement another round of mass lay-offs. In addition, the analysts noted, “In valuing patents, recognize that BlackBerry is a net-payer of royalties and divestiture of the hardware business may negate future possibilities of a mobile solutions provider.”
Furthermore, Nichols believed that distressed asset buyers will scrutinize the cash burn, declining patent value and services revenues of the Canadian smartphone manufacturer. According to him, the company’s services revenues and cash flow will be able to sustain interest payments based on his calculations.
The analyst said the MDM market is already crowded, and BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) needs to add resources to become a “preferred mobile security company.”
Moreover, Nichols said BlackBerry’s cash flow is uncertain. He estimated that the company’ cash by the end of fiscal 2014 will be $4.8 per share and approximately $1.75 a share in a worst-case scenario. He said, “It takes cash to restructure/shrink the business and we calculate a reduction of ~2k in addition to the 4.5k announced maybe required to the right-size the organization as BlackBerry attempts to remain a stand-alone entity.” He said the company is unlikely to exist in its current structure.
Given the intention of the consortium of buyers led by Watsa’s firm, it is possible that they would transform the company into a secure mobile service provider because it has the most secure networks. Jefferies managing director, Peter Misek, recently pointed out that the enterprise business of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is its crown jewel and its networks are “NSA proof.”