Fairfax Financial Holdings Ltd (TSE:FFH) may be planning on acquiring BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), but Citigroup analyst Jim Suva isn’t buying that story. In a new report on the company, Suva puts a new price target of $7 on the company’s shares and warns that there are real problems with the acquisition.
Suva isn’t necessarily predicting that the BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) acquisition will not go through, he’s saying that the risk is too great to buy shares in the company at their current price. On today’s market, shares in the company were trading at just under $8. That means the $9 bid represents an 11% return for investors.
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BlackBerry acquisition problems
The major problem that could get in the way of the BlackBerry Ltd (NASDAQ:BBRY) deal is, according to Suva, the ability to attract financing. Fairfax Financial Holdings Ltd (TSE:FFH) is going to have to take on debt in order to bring BlackBerry under its wing. That may not prove a simple process, according to this report.
BlackBerry Ltd (NASDAQ:BBRY) may face other obstacles as it tries to sell itself, including regulatory trouble and due diligence turning up something ugly. There is also a real threat of an activist investor getting involved in the deal There are several activists out there trying to make a big name for themselves. Pumping up the value of BlackBerry Ltd (NASDAQ:BBRY) could be a great way to do just that.
If the Fairfax attempt to acquire BlackBerry Ltd (NASDAQ:BBRY) goes wrong, the price of the company’s shares will likely fall. The company’s earnings report, which was released last week, contained few signs of life, and the company withheld a certain amount of the detail until a release next week.
BlackBerry a Sell on sale
There may be problems for Fairfax Financial Holdings Ltd (TSE:FFH) when it tries to secure loans to buy BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB). Fairfax itself should have no problems securing financing for the buy, but the financial state of BlackBerry is so poor that even big banks might shy away from dealing Prem Watsa on this deal.
With the problems facing BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), and the risk that Watsa will not be able to secure financing for the buyout deal, BlackBerry is not worth a bet in the hopes of getting a return of 11%. The best investors can do is stay away from that particular trade. Graham rates the stock a Sell.