No Reason to Own Blackberry

 | Sep 27, 2013 | 2:30 PM EDT
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This week has been a strange one for BlackBerry (BBRY).

  • First, the stock tanks after a disastrous pre-announcement last week of missing Wall Street's revenue targets by half.
  • Then, the next trading session after the announcement, BlackBerry's largest holder -- Fairfax Financial and Prem Watsa -- announced they would buy the company for $9 a share along with a consortium of unnamed bidders.
  • Then, the Street started to become skeptical of the deal as Prem can walk away from the deal at any time penalty-free, and was unwilling to name any other bidders. Fairfax also said it would not put any more of its own cash in the deal beyond its current stake worth $465 million.
  • BlackBerry's price slumped to under $8 Thursday, and it then announced that it wouldn't hold an analysts call this morning "in light of the agreement" signed with Fairfax last week.
  •  Finally, as the week has progressed, Watsa has gone on a media blitz to assure everyone that he will close on his deal and that he has tremendous interest from other parties looking at BlackBerry.

Prem Watsa is a serious investor. I don't doubt that he could close this deal at $9 a share if he wanted. I've also spoken to a couple of people who have been looking at participating in the deal, so it's clear that this kind of analysis is going on.

However, I have no doubt that Watsa would much rather find an American strategic buyer for these assets rather than have to take the company private and toil away for years in obscurity for some undetermined outcome.

I suspect that is the real motivation here with this letter of intent and a six-week "go shop" period.

I do think there's real value embedded in the assets of BlackBerry: the patents, the security network, the BBM app, the BES server. The most interesting aspect but the hardest to value is the futuristic machine-to-machine stuff they have from the QNX acquisition. That allows them to play in the "internet of things" trend which has still to play out. But are those assets better off in a company that's private with a lot of debt piled on to it? I don't think so when the cash flow stream seems to be in jeopardy.

Maybe there is a way to get to a skinnied-down, stand-alone BlackBerry which is debt free and where the company has a future. It's hard to see how it gets there from here. It appears that you either get an American buyer of the assets, or you go the LBO route. Prem Watsa might be forced to do the latter, and I suspect he could get it done, but why would you want to.

At this point, I don't see any reason to own BlackBerry or to short it. Look for better risk and reward elsewhere.

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