By Euan Rocha, Allison Martell and Greg Roumeliotis
TORONTO/NEW YORK Nov 4 BlackBerry Ltd
abandoned on Monday its plan to sell itself and said its CEO is
stepping down, sparking a 16 percent dive in its share price and
raising fears the struggling smartphone maker is running out of
After a two-month review of strategic options and talks with
potential buyers that included Facebook, Lenovo and private
equity firms such as Cerberus Capital Management LP, BlackBerry
said it will abandon a sale. Instead, it will raise $1 billion
by issuing convertible notes to a group of long-term investors
including its largest shareholder, Fairfax Financial Holdings
The only formal offer to buy BlackBerry - a tentative one -
had come from Fairfax, which wanted to take the company private
for $4.7 billion. But sources said Fairfax boss Prem Watsa had
trouble financing the deal. Fairfax will now end up with $250
million of the debt offering.
"BlackBerry is hemorrhaging employees, it is hemorrhaging
customers. The only thing that's growing is doubt," said John
Stephenson, a senior vice president at First Asset Investment
Management and one of BlackBerry's disgruntled investors.
"You can argue that it's an OK day for Fairfax and Prem
Watsa, but it's a miserable day for Canada. It's a miserable day
for BlackBerry investors and BlackBerry employees," said
BlackBerry founders Mike Lazaridis and Douglas Fregin had
partnered with Cerberus and mobile chip giant Qualcomm
to consider a bid for BlackBerry. Only this weekend they had
sent a letter to BlackBerry expressing their interest and asking
for more time to finalize a bid, according to people familiar
with the matter.
The consortium, which was backed by Goldman Sachs Group Inc
, was confident it could secure the necessary financing
but found BlackBerry uncooperative in providing key information,
including information on its government contracts and
intellectual property portfolio, the people said, asking not to
be identified as the negotiations were private.
"BlackBerry is confident that it has run a robust strategic
alternatives review process. The board believes that the deal
outlined today was the best proposal, and in the best interest
of its shareholders," said a spokesman for BlackBerry.
However, sources familiar with BlackBerry's board's thinking
on the matter said the board moved ahead on Watsa's financing
proposal because Cerberus and its partners did not have a solid
proposal with the required financing in place.
The sources stressed that all the strategic and financial
players that delved into the company's books were aware of the
bid deadline, and that the board opted for the best deal put
before it within the timetable laid out.
BlackBerry shares closed 16 percent lower at $6.50, giving
the company a market value of about $3.38 billion, down from its
peak of $80 billion.
BlackBerry named John Chen, credited with turning around
Sybase Inc in the late 1990s, as its interim CEO and executive
chairman. Sybase, an enterprise software company, was eventually
acquired by SAP AG in 2010.
Chen's appointment was a surprise to investors as was the
departure of current CEO Thorsten Heins, who will leave in about
two weeks after the debt offering is completed. The company gave
no reasons for the change.
BlackBerry, based in Waterloo, Ontario, pioneered on-the-go
email, and for years its pagers and phones were must-have
devices for political and business leaders. But it has bled
market share to Apple Inc's iPhone and devices that
powered by Google Inc's Android software.
In an interview with Reuters, Chen stressed his experience
as a turnaround artist, and said he has no interest in shutting
BlackBerry's loss-making handset business.
"I'm doing this for the long term. I'm going to rebuild this
company," said Chen, who said it would take six quarters to turn
BlackBerry around. "I know we have enough ingredients to build a
long-term sustainable business. I've done this before and seen
the same movie before."
Chen, who joined private equity group Silver Lake as senior
adviser a year ago, said his involvement with BlackBerry has
nothing to do with his ties to Silver Lake, which partnered with
Michael Dell recently to take computer-maker Dell Inc private.
"Fairfax's investment will buy the company some time, which
it badly needs, but the company needs a new strategy more than
ever," said Jan Dawson, Ovum's chief telecoms analyst, noting
that communication on the strategy must start "very soon".
BlackBerry said Watsa, who stepped down pending BlackBerry's
strategic review, is rejoining its board as lead director and
chair of its compensation, nomination and governance committee.
Chen replaces Barbara Stymiest, as chair of BlackBerry's board,
while Heins and David Kerr are also stepping down.
Heins has been BlackBerry CEO for less than two years. In
April 2013, the board agreed to a new pay deal that included
generous payments if Heins lost his job due to a change in
control, or if he was terminated without cause, including two
years' salary and a variety of other incentive payments.
FAIRFAX STILL ON BOARD
In BlackBerry's new debt deal, the seven-year subordinated
debentures will be convertible into common shares at $10 each.
The private placement could eventually increase the number of
BlackBerry shares by almost 20 percent.
BlackBerry did not name the other investors in the deal, but
Watsa said Silver Lake is not one of them.
Since BlackBerry thus far carries no debt, analysts noted
that the financing deal puts Fairfax in a strong position even
if the turnaround plan fails and BlackBerry is forced to seek
creditor protection. Debt holders take precedence over equity
investors in such cases, giving Fairfax a bigger say in the
company's ultimate fate.
"We did the due diligence ... and our conclusion was that a
leveraged buyout with high-yield debt and at high interest rates
was not appropriate for this company," Watsa told Reuters in an
interview on Monday. "So we came out with the convertible
debenture deal that we saw as more appropriate."
The investors have an option to buy up to an additional $250
million worth of debentures within 30 days after closing.
Despite the new financing deal challenges remain, including
a declining subscriber base, falling shipments, the defection of
clients that use its enterprise servers and a loss of market
share, analysts say.
"Investors should expect very poor operating results in the
coming quarters," warned National Bank analyst Kris Thompson,
who slashed his BlackBerry price target to $3 from $9.