TORONTO Shares of BlackBerry Ltd (BBRY.O) (BB.TO), which have been on a tear so far this year, rallied again on Wednesday as investors eyed a cash windfall from the technology company's plans to sell its Canadian real estate assets.
The Waterloo, Ontario-based company said on Tuesday it plans to divest most of the property it owns in Canada to bolster its balance sheet. Analysts believe the move will give the struggling smartphone maker more breathing room, as it attempts to alter strategic direction and turn its faded fortunes around.
The stock was also lifted by cloud software maker VMware Inc's (VMW.N) move to acquire privately held mobile security company AirWatch for $1.54 billion, as analysts opined the deal value suggests BlackBerry's own mobile device management business is significantly undervalued.
BlackBerry shares surged 8.6 percent to a preliminary close at $10.78 on Nasdaq, while the Toronto-listed stock jumped 9.9 percent to end at C$11.96.
BlackBerry's stock has been by far the best performer on the Toronto Stock Exchange's top 60 index in the new year, having risen 50 percent so far in 2014. The next biggest gainer is Valeant Pharmaceuticals International (VRX.TO), up almost 22 percent, while the index up just 2.5 percent year-to-date.
VALUABLE REAL ESTATE
Analysts estimate that the real estate asset sale will raise a sizable amount of cash for BlackBerry, which is attempting to reinvent itself under the leadership of its new chief executive, John Chen.
"Based on our estimates using Waterloo, Ontario per square foot prices, we conservatively estimate that the company could bring in roughly $600 million to $700 million from the sale," Wells Fargo analyst Maynard Um said in a research note to clients.
Um added that while the asset sale not only strengthens the company's balance sheet, it also gels with Chen's shift toward a more asset-light business strategy going forward.
The company did not disclose how much it plans to raise from the sale process. The properties comprise more than 3 million square feet of office space.
"This initiative will further enhance BlackBerry's financial flexibility and will provide additional resources to support our operations as our business continues to evolve," said Chen in a statement late on Tuesday.
Chen has been working quickly to implement a whole series of changes in the company, as it seeks to change course and focus less on its devices segment, and more on its services business.
While the VMware-AirWatch will heighten competition in the mobile device management space, analysts also see the deal as underscoring the value of that business within BlackBerry, as corporate and government clients seek to secure sensitive data on smartphones used by their employees.
Um notes the deal value for AirWatch implies a valuation of 9 to 12 times forward sales, and applying a similar valuation to BlackBerry's own services business would indicate that segment alone is worth somewhere between $2.5 billion and $3.3 billion.
BlackBerry currently has over 80,000 enterprise clients, who rely on its BlackBerry Enterprise Service offering to secure the mobile devices on their internal networks. Last year, BlackBerry broadened its platform to allow clients to now secure devices powered by Google Inc's (GOOG.O) Android operating system and Apple Inc's (AAPL.O) iOS platform.
BlackBerry has long been the go-to player in this market and Chen plans to build on this core strength.
However, the VMware-AirWatch deal and other recent takeovers in this space also pose risks for BlackBerry, caution analysts.
"With this acquisition, the competitive landscape in mobile enterprise management has further intensified, making it even more challenging for BlackBerry as it now faces strong competitors in Citrix, VMware, and IBM, amongst others," said UBS analyst Amitabh Passi in a note to clients.
(Additional reporting by Alastair Sharp; editing by Peter Galloway, G Crosse)