BlackBerry Ltd (BBRY): LBO Could Lead to $15 Bid Says Jefferies

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BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) recently revealed that it is considering strategic options like JVs, strategic partnerships to take the company private, however, analysts Peter Misek, Jason North and Billy Kim from Jefferies believe that LBO might be a possibility owing to “interest from several large Canadian funds and rescaled opex.”

BlackBerry Ltd (BBRY): LBO Could Lead to $15 Bid Says Jefferies

Analysts believe that less than expected performance of BB10 devices might have forced the board to consider taking the company private or selling it.

BlackBerry forms a special committee to evaluate options

To explore the best possible strategic option, a special committee of the board has been formed headed by Timothy Dattels (Partner at TPG Capital). Other members of the special committee include Barbara Stymiest (Chairperson), Thorsten Heins (CEO), Richard Lynch (President FB Associates), and Bert Nordberg (Chairman of Vestas Wind Systems).

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) gave out no specific time schedule as to when the committee is expected to come out with some results.

“We continue to see compelling long-term opportunities for BlackBerry 10, we have exceptional technology that customers are embracing, we have a strong balance sheet and we are pleased with the progress that has been made in our transition,” said BlackBerry CEO Thorsten Heins in a statement on Monday.

Heins further told that the company will continue with its strategies to save on costs, increase the deployment of BES 10, popularizing BlackBerry 10 smartphones, expanding BBM on other platforms and pursuing opportunities in mobile computing.

Prem Watsa, Canadian pension funds and banks planning to take BlackBerry private

Analysts are of the view that the resignation of Prem Watsa, BlackBerry’s largest holder with a 10 percent stake, supports a possible LBO option. Prem Watsa, CEO of Fairfax Financial will resign due to conflict of interest with the management, but he won’t be selling the BlackBerry Ltd (NASDAQ:BBRY) shares.

In an interview given to Bloomberg, Canadian Pension Plan CEO Mark Wiseman said that they may invest in BlackBerry, if the company goes private.

According to the report, Fairfax along with other Canadian pension funds and banks are planning to take BlackBerry private. Prem Watsa through Hamblin Watsa Investment Counsel, a subsidiary of Fairfax Financial, holds about 9.9 percent in BlackBerry.

Canadian Pension funds that have a stake in BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) are: Ontario Teachers’ Pension Plan Board (0.4 percent), The Public Sector Pension Investment Board (0.4 percent), Canada Pension Plan Investment Board (0.2 percent), The OPSEU Pension Trust (0.1 percent), and OMERS Administration Corporation (0.1 percent). The report also believes that banks including BMO, CIBC, and RBC may also take part in the process.

All these institutions together hold around a 17 percent stake in BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), and have enough opportunity to increase their stake in the company as “current BlackBerry holdings represent 0.3% of the groups’ equity assets.”

Analysts calculate a $15 take-out price in case of LBO. The calculation is based on a 5 percent decline in revenue, 20 percent cut operation expenditure in 2015 and 10 percent in 2016. Analysts assume 15 percent participation by the current shareholders, which along with a $15 LBO price and $2 billion in debt will result in low-$20s IRR.

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