Early this week BlackBerry finally got around to stating the obvious -- that it is seeking to find alternative ways to continue to exist within the mobile device business. We touched on some of the early noise BlackBerry itself raised on Monday, but a few days later it is well worth revisiting the story.
The first thing worth noting is that it is BlackBerry's biggest investor, Prem Watsa -- who we've speculated about for at least 18 months now -- that is leading the charge on where BlackBerry needs to go next. Watsa seemed to believe, even in the darkest of BlackBerry's dark days that it had something in hand that would turn the company's fortunes around.
Whether that was the BlackBerry 10 operating system (BB10) on its own or if Watsa genuinely believed that BlackBerry's multiple new yet utterly derivative and unattractive devices in tandem with BB10 would stand even a remote chance of succeeding in a world of Samsung Galaxies, HTC Ones and anything made by Apple, we don't really know. In any case, and in spite of CEO Thorsten Heins’ heroic efforts to push BlackBerry back into relevance, the company had simply fallen too far too fast and too deep into the abyss of hubris its former co-CEOs Mike Lazaridis and Jim Balsillie had pushed it into, to ever gain back any relevance.
We nevertheless continued to wish the company the best of luck -- the enterprise mobile world would be a better place today if a strong and powerful enterprise BlackBerry business existed. We wanted BlackBerry to provide real "checks and balances" against Android and even Apple. C'est la vie. A former board member as of the beginning of this week, Watsa himself may now be angling to pick up the rest of BlackBerry, take it private and figure out how to regain ownership of the enterprise.
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Almost exactly one year ago we strongly suggested that the one acquirer that makes sense for BlackBerry is Samsung. No, it is most emphatically not Microsoft! We continue to believe that Samsung could do wonders with BB10 running its own "slew" of cool hardware within the enterprise space. Not only would Samsung bring the hugely needed "device cool factor" to the game, but also the necessary financial resources to keep the BlackBerry 10 and security software development teams in place -- and in Canada. Along with a huge advertising budget, of course. And some interesting patent protections.
We still believe that Samsung and BlackBerry are the right partners for all the reasons we continue to clamor for such a marriage. As consumer-focused high end smartphones (the Galaxy S4) become hard to sell "in great volume at a rapid pace" due to market saturation, the enterprise market beckons. But to conquer the enterprise Samsung needs more than Android and absolutely something that is not Tizen. And as safe as SAFE and its KNOX security platform appears to be, it doesn't have the true security capabilities of BB10. Samsung can put a huge shine on this and, with its cool devices, win back a lot of BlackBerry market share.
Prem Watsa's Dilemma or Conundrum
Watsa has, to date, bought up a position in BlackBerry that adds up to just about 10 percent of the company, which has come at a cost to Watsa and his company, Fairfax, of roughly $880 million. We've previously calculated that Watsa's overall investment comes in at about $17 per share. Considering that some key financial analysts are unequivocally stating that the company won't see anything more than $12 to $13 per share in a sale (though CIBC analyst Todd Coupland suggested it could be worth as much as $20 per share -- we sincerely doubt it ourselves), Watsa is looking at a not-insubstantial loss in the neighborhood of perhaps $250 million in an outright sale. Watsa and Fairfax can certainly weather such a loss, but even so no one wants to do that
The next viable option for Watsa is to invest in taking BlackBerry private, where it can hide itself away out of the public eye and the need to constantly divulge its sales, revenues and profits (or more specifically, the lack of them). Between Fairfax and several of the other large institutional investors that own the stock, going private certainly is a very real possibility. That Watsa has resigned from the Blackberry board (he did so on Monday when the news was originally announced) offers up a strong hint that a Watsa-led buyout is very likely.
By doing so perhaps Watsa can unlock the means to creating a more streamlined and more modern BlackBerry than can untangle itself from its current position and emerge as a nimble mobile player that can compete with the big boys. Well, one can dream but that isn't even close to a reality.
But if Watsa is able to buy up the company and repackage it in a way that would become ultra-attractive to a buyer (hell, we mean Samsung!) then Fairfax and the other institutional investors may at least get out of BlackBerry without a loss and perhaps even a very small profit. What would Watsa need to put on the table?
BlackBerry's Pooled Assets
First things first, though BlackBerry has already shed almost eight million subscribers since it launched BB10 and the Z10, it still has about 74 million unique subscribers - of which about 25 percent and full-fledged enterprise users. Even to Samsung that is a huge number of people to convert to its own devices running BB10. An enterprise-specific Galaxy S5E and Note 4E (right, E for enterprise), for example.
One might argue that those 74+ million users would simply migrate over to Android or Apple anyway, but that wouldn't give Samsung a specific "enterprise mobile" market that it can exclusively target with special features. That is the secret sauce here.
Next, even in today's far less security-conscious enterprises, security remains something that needs to be addressed. The BlackBerry brand -- even if it is only the operating system -- still owns the title of world's most secure mobile enterprise system, along with the certifications no one else has. Properly marketed these would be of enormous value to Samsung.
BlackBerry also still has a very substantial patent portfolio that would give it some levels of protection. And finally, BlackBerry Messenger offers a huge user community.
There are assets here that Watsa can repackage into something that is greater than the current whole. Finally, it would be critical to Canada's national pride and international reputation to at least be able to retain the software side of the business in Canada, something that Watsa should also try to make part of any deal.
In a prepared statement this past Monday, Watsa stated that, "I continue to be a strong supporter of the company, the board and management as they move forward during this process, and Fairfax Financial has no current intention of selling its shares." That more or less spells things out, we think.
There is only one thing to do with those shares -- pool them together with other large investors and take BlackBerry private in order to strike a better deal with an acquirer.
TechZone360 Senior Editor
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