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| FILE - In this Wednesday, Jan. 30, 2013, file photo, blackBerry's employees prepare the launch event for the company's new smartphones in London. Fairfax Financial Holdings has offered to buy BlackBerry in a deal that values the Canadian smartphone company at about US$4.7 billion, on Monday, Sept. 23, 2013. |
TORONTO (AP)
-- BlackBerry has agreed to a $4.7 billion sale to a group led by its
largest shareholder, Fairfax Financial Holdings Ltd., after new
smartphones failed to turn the company around.
BlackBerry
Ltd. said Monday that a letter of intent has been signed and that its
shareholders will receive $9 in cash for each share. The deal comes just
days after the Canadian company announced plans to lay off 40 percent
of its global workforce.
The BlackBerry,
pioneered in 1999, was once the dominant smartphone for on-the-go
business people and other consumers. It could be so addictive that it
was nicknamed "the CrackBerry." President Barack Obama couldn't bear to
part with his BlackBerry. Oprah Winfrey declared it one of her "favorite
things."
But then came a new generation of
competing smartphones, starting with Apple's iPhone in 2007. The
BlackBerry, that game-changing breakthrough in personal connectedness,
looked ancient suddenly.
Although BlackBerry
was once Canada's most valuable company with a market value of $83
billion in June 2008, the stock has plummeted from more than $140 a
share to less than $9, giving it a market value of $4.6 billion, just
short of Fairfax's offer.
Anaylsts say that
although BlackBerry's hardware business is not worth anything, its
service business and patents are still valuable. At the end of the
second quarter, the company also had total cash and investments of about
$2.6 billion and no debt.
The deal follows a
$7.2 billion offer that Microsoft Corp. made this month for the phones
and services business of another troubled phone maker, Nokia Corp.
Fairfax
head Prem Watsa, who owns 10 percent of BlackBerry, stepped down as a
board member because of potential conflicts when BlackBerry announced it
was considering a sale last month. The company would no longer be
traded publicly once the sale goes through.
"We
believe this transaction will open an exciting new private chapter for
BlackBerry its customers, carriers and employees," Watsa said in a
statement. "We can deliver immediate value to shareholders, while we
continue the execution of a long-term strategy in a private company."
Watsa
is one of Canada's best-known investors and is founder of Toronto-based
Fairfax Financial Holdings Ltd. BlackBerry founder Mike Lazaridis
recruited Watsa to join the company's board when Lazaridis and Jim
Balsillie stepped aside as its co-CEOs in January 2012.
BlackBerry
shares plunged 17 percent after the company announced Friday a loss of
nearly $1 billion and layoffs of 4,500 workers. It gained 9 cents, or
1.1 percent, to $8.82 Monday.
BlackBerry said
the general terms of the deal have been approved by its board and a
special committee set up to look at options. The company said it will
negotiate and execute a definitive transaction agreement with Fairfax by
Nov. 4.
During that time, BlackBerry is
entitled to continue to find other buyers, but if BlackBerry backs out
of the deal, it would owe Fairfax about $157 million.
"The
special committee is seeking the best available outcome for the
company's constituents, including for shareholders," BlackBerry
chairwoman Barbara Stymiest said in a statement.
Watsa
is likely to keep current CEO Thorsten Heins in the job. He said in
April that he's a big supporter of Heins and has called his promotion
the right decision. He also said he's excited about the company's new
BlackBerry 10 operating system.
This year's
launch of BlackBerry 10 and fancier devices that use it was supposed to
rejuvenate the brand and lure customers. But the much-delayed phones
have failed to turn the company around. At their peak in the fall of
2009, BlackBerry's smartphones enjoyed global market share of more than
20 percent, says Mike Walkley, an analyst with Canaccord Genuity. That
is now just 1.5 percent.
BlackBerry said
Friday that it will lay off 4,500 employees as it tries to slash costs
by 50 percent and shift its focus back to competing mainly for the
business customers. That will bring its global headcount to 7,000. The
company cut 5,000 jobs last year.
A week
earlier than expected, BlackBerry surprised the market by reporting
Friday that it lost nearly $1 billion in the second quarter. The company
is booking over $900 million in charges to write down the value of its
unsold smartphones.
The company also said
Friday it plans to focus on offering only two high-end devices and two
entry-level phones going forward, with emphasis on the business market.
The
decline of BlackBerry, formerly known as Research In Motion Ltd., is
evoking memories of Nortel, another Canadian tech giant, which ended up
declaring bankruptcy in 2009.
But BGC analyst
Colin Gillis said taking BlackBerry private is the right move and said
it's possible that BlackBerry could survive in a much smaller form. He
noted that the $9-per-share offer is lower than the $12.32 average price
that the stock traded over the past six months.
Anthony
Michael Sabino, a professor at St. John's University's business school,
said going private removes the burden of pleasing shareholders with
short-term results, just as Michael Dell hopes to do with Dell Inc.
after winning a bid to take the troubled computer maker private. He said
Fairfax is known for patience in its investments, which would give
BlackBerry time to regroup.
"In all honesty, its fate is still uncertain, but at least now it has a fighting chance," Sabino said.
