The smell of blood is in the air.
- BlackBerry has announced (again) that it is open to considering strategic options for the company other than remaining an independent listed entity.
- Everything is on the table including acquisition, joint ventures, going private or strategic alliances.
- The problem is essentially that BB10 has not taken off nearly as well as hoped and the prospects of the handset business delivering value have taken a nose dive.
- The handset business has always been a scale game and as it is today BlackBerry is not large enough to justify all of the in house development that it does.
- A joint venture or an alliance that would increase the number of handsets shipping on its platform and thereby give it the scale it badly needs.
- However I think that there are only two realistic options.
- First. A straight acquisition.
- If another handset maker such as Huawei, ZTE or Lenovo wants to scale up and increase access to developed markets, BlackBerry would be an option.
- There will be security problems but the US government is now a much smaller customer than it was.
- These companies could move all of the development to China and the platform onto a secure variant of Android.
- The combination of greater scale and lower R&D costs could make an acquisition worth considering.
- However, all of these companies will have in mind BenQ’s catastrophic acquisition of Siemens’ handset business and will think hard before any commitment.
- Second. A buy-out by private equity.
- To me this is the most likely option as it is the only one where I can see a fairly straight road to actually making some money.
- As of yesterday BlackBerry’s EV was $2.8bn. (50% of the market cap of $5.6bn is net cash).
- Assets such as the service business, patents, BBM and other fixed assets could be worth around $5.7bn.
- The handset business is contributing substantial negative value and if that can be neutralised via an asset sale or close down then the true value of the other assets could be realised.
- A buy-out is a much more interesting a realistic proposition and where I expect the vast majority of interest will be from outside parties.
- I doubt that management relishes the idea of vultures carving up the carcass of its beloved endeavour but shareholders are likely to much less picky.
Blog Comments
tatilsever
August 15, 2013 at 11:34 am
> “These companies could move all of the development to China…”
Most of the talent at BB would be staying in Canada, so such an acquisition would be for patents, brand name and customer inertia in moving from BBM.
I don’t know of major patents lawsuits between BB and other major vendors, so I assume BB has already made licensing agreements with Apple, Samsung and Nokia, reducing the usefulness of these patents to the expected cash flow. In any case, the value Google got out of Motorola’s patents and the price paid for Kodak’s patents indicate that the great gold rush for mobile patents is over. Now that BBM can be made available on other platforms, it does not sound that valuable for a hardware maker. That about leaves brand name as the only valuable asset to a hardware maker, but by the time the deal closes, I doubt there will be much shine left on Blackberry brand. I would be very surprised if any handset maker acquires BB unless they are planning to keep developing BB10, as an alternative to Android for differentiation or insurance against Google locking it down. $3 billion price point sounds too high for that.
windsorr
August 15, 2013 at 11:50 am
Given BB10’s lack of traction the word talent needs to be taken with a pinch of salt. Perhaps a private BB is better off if they do stay in Canada and do something else.
There aren’t any real outstanding lawsuits because the BB portfolio is widely licenced. Hence the value of the portfolio is the present value of the royalty stream that is being and will be generated in years to come. I don’t have a figure for that but it will be pretty valuable..BBery coughed up more than $1bn to acquire these patents some time ago in a series of different transaction.
tatilsever
August 16, 2013 at 4:25 am
> “Given BB10′s lack of traction the word talent needs to be taken with a pinch of salt.”
Oh, come on that is a low blow. Lack of traction doesn’t necessarily indicate a lack of quality. Timing plays a role, so does marketing and executive level actions.
> “Hence the value of the portfolio is the present value of the royalty stream”
Yes, that is what I tried to say in my comment. It has no strategic value for hardware makers. It is equivalent to buying a corporate bond portfolio of some telecomm related companies, OK, maybe more like a convertible bond portfolio.