12 October 2013

BlackBerry Assets May Be Worth More Sold Apart Than All Together

Image Credit: BlackBerry Ltd.
Breaking up may be hard to do, unless it happens to involve a once dominant company with a myriad of assets. Mobile phone platform maker BlackBerry Ltd. could be broken up amidst concerns that purchasing-company Fairfax Financial Holdings Limited might be unable to raise the offered $4.7 billion.

Just three weeks ago, the company announced that it expected a massive quarterly operating loss of at least $950 million for the quarter that ended August 31, and as a result would cut 40 percent of its total global workforce in response.

Bloomberg reported on Thursday that various companies, including Cisco Systems Inc., SAP AG and Samsung Electronics were approached last week by BlackBerry advisors, but these various firms expressed interest in only parts of the company.

The breakup would let parties bid for BlackBerry’s most valuable pieces, which could include its patents or enterprise network. This suggests that the various parts of the company might be worth more than the sum of the whole company.

“Yes, but it isn’t even distributed,” mobile industry analyst Chris Silva of High Rock Strategy told RedOrbit. “The assets that BlackBerry are trying to hold on are worth a lot more.”

“Whether this is HTC trying to break into the mobile phone market with a manufacturer in North America, or Microsoft looking to buy a mobile management tool, these are the types of sales that might demand a premium if not the dollar for dollar evaluations,” Silva added.

Still the break up could be good for the company’s investors.

“If you break up the company, you’re going to get more than the company is worth right now,” Sachin Shah, a strategist in special situations and merger arbitrage at New York-based Albert Fried & Co. told Bloomberg. Whether Fairfax’s bid is successful or not, “breaking it up sounds more appetizing for all involved.”

Since the deal with Fairfax, which is BlackBerry’s largest shareholder, was put on the table BlackBerry has been looking to rival bids. The company has until November 4 to consider other proposals while Fairfax, along with a group of investors, conduct due diligence and, more importantly, line up financing.

The group has sought funding from Bank of America Merrill Lynch and BMO Capital Markets, but no financing deal has been announced.

Bloomberg noted that investors have expressed concern that the current deal could fall apart, and the stock has been trading 10 percent the Fairfax offer of $9-per-share.

BlackBerry advisors have looked to create a bidding war and that led to the reaching out to the aforementioned firms such as SAP, Cisco and Samsung. However, those companies have apparently not been interested in making an offer for the whole company and instead could consider individual parts.

SAP for one is reportedly evaluating whether parts of BlackBerry’s enterprise business, which could securely manage fleets of smartphones for business customers; while Intel Corp. could be an interested party for the company’s patents.

Bloomberg reported that the enterprise business could be worth $550 million to $1.1 billion, with the value dependent on how quickly the BlackBerry subscriber base declines. It has apparently fallen from 76 million in March to 72 million in June, and since that time the company has stopped disclosing numbers.

Whether selling off the parts is the best move is also not entirely clear, nor is what it means for the value of what is left of the company afterwards.

“The fact that they are trying to combat the breakup and hold on to assets shows that they are not living in reality,” said Silva. “That ship has long since sailed and it is unfortunate as it diminishes the overall value of their proprieties as they pick their favorites.”

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