John Paczkowski

Recent Posts by John Paczkowski

Does Fairfax Have Resources — And Motivation — To Close BlackBerry Deal?

Prem_Watsa_BlackBerry_PinchSo BlackBerry has found itself a buyer in majority shareholder Fairfax Financial Holdings. The question now is, can Fairfax close the deal, and does it even want to?

If the answer to those questions seems obvious, think again. Recall that Fairfax and its chairman, Prem Watsa, haven’t raised financing for the deal, and there’s a chance they might fail to do so. Keep in mind, too, that the firm’s letter of intent includes a go-shop provision that entitles it to 30 cents a share, about $157.2 million, if BlackBerry attracts and accepts an offer better than the $9 per share Fairfax is offering.

So, Fairfax, which doesn’t yet have the money to acquire BlackBerry, stands to make millions if someone else does. And for a company that bought big into BlackBerry in January of 2012, when the smartphone maker’s stock was trading between $15 and $17 a share — far above the $8.01 at which it closed Wednesday and the $9 Fairfax has offered — that’s likely an attractive outcome.

In other words, the best-case scenario for Fairfax is one in which BlackBerry rebuffs its offer.

“I don’t think it was a serious bid,” Ironfire Capital founder Eric Jackson told AllThingsD. “I believe Watsa is trying to smoke out others into making a full acquisition. I think the best buyer is an American one: Microsoft, Cisco or IBM. I think that’s the play. If someone does a buyout, that $150 million break-up fee will go a long way to helping make back the money he put into this trade.”

A reasonable theory, and one I’ve heard repeated a few times this week. Problem is, it’s not clear there’s anyone to smoke out. “BlackBerry’s hardly an attractive takeover target,” a private equity source who declined to be named told AllThingsD. “It’s a tough sell.”

Carolina Milanesi, a Gartner research vice president, agreed. “I struggle to see who else would move in now,” she said.

Indeed. BlackBerry has been advertising for a buyer for more than a month now, without success. It’s hard to see how this wire-and-string bid cobbled together by Fairfax will change that. These are desperate moves made in response to a profound lack of interest in the sadly diminished smartphone pioneer; you don’t advertise for a buyer if you aren’t having difficulty finding one.

So, on to the next question: If no other bidders emerge, will Fairfax close the deal — and can it arrange the financing to do it? There are plenty of skeptics. “Prem’s a powerful guy, but I don’t see how he makes this deal happen,” said that private equity source I mentioned earlier. Over at Bernstein Research, analyst Pierre Ferragu took a similar view. “We believe the Fairfax initiative is unlikely to come to fruition and see the next valuation floor for the stock at $5,” he said in a Wednesday note to clients.

But others think Fairfax can pull it off. “While I’ve been skeptical, given what appeared to be a hastily thrown-together deal, I’m beginning to think they could actually close it,” Wedge Partners analyst Brian Blair told AllThingsD. “I think it has become an issue of national pride to save BlackBerry.”

Jackson agrees. “I think Watsa will close it if he needs to,” he said. “It would be a point of pride. He would figure out a way. But it might be at a lower price.”

Watsa, for his part, says he’s certain the deal will close. “We wouldn’t put our name to such a high-profile deal if we didn’t feel confident that at the end of the day that our due diligence would be fine and we’d be able to finance it,” he told Reuters in an interview published Wednesday night.


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