A More Interesting Development in BlackBerry

 | Aug 13, 2013 | 7:30 AM EDT
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On Monday, substantial attention was given to the fact that BlackBerry (BBRY) put itself up for sale. I think what's more interesting is that Prem Watsa resigned from the board because of "potential conflicts of interest" in the competitive bidding process.

Watsa doesn't get covered in much in the U.S. -- or, when he does, it's as "the Warren Buffett of Canada" or the guy that sued Stevie Cohen. However, Watsa is a 10% owner of BlackBerry. He bought his initial tranche around $14 per share, and his second tranche around $7, so his blended average cost is around $10 -- roughly where the stock closed Monday.

So far, the reaction to the latest BlackBerry news has been rather muted. Many remember that the company hired bankers to explore alternatives last year, and that led to nothing. Others suggest that there are no buyers, and so the premium will be limited.

I agree with these points, but I think a split-up of the assets might be possible.

BlackBerry could look to unload the network-services business to carriers or enterprise players, as with Cisco (CSCO) or IBM (IBM). While doing this, it may keep the mobile software that it uses to license to third parties -- for the longer-term machine-to-machine (M2M) opportunity. Different Wall Street analysts have estimated that this M2M business could be worth $3.50 to $7 per share after BlackBerry sheds the other business.

My guess is that Watsa will look to buy a big chunk of that business as part of the restructuring. Then he'll look to get as much as he can from the sale of the services business, which does include patents that BlackBerry purchased for about $2 billion to $3 billion.

If we add the patents and the M2M business, you're already at the current price levels. So, if you buy in right here, you're getting in at Watsa's average cost basis, and you're betting you will get as good a deal as he will.

There's lots of risk with BlackBerry. This sale is likely an acknowledgement that the current quarter is bad and things will only get worse financially from here. So the company does need a quick infusion of some cash right now. With that in mind, I think the most likely buyers of the network-services business will be the American enterprise publics.

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