According to a report in Reuters, BlackBerry (BBRY) is exploring the possibility of going private. Shares are up only 5% on the news, and the stock is down a miserable 18% for the year.
BBRY’s management thinks it will have more flexibility to make tough decisions as a private company, not having to deal the whims of investors. It’s a good bet that the company will need to lay off even more people as well as unload assets.
At the same time, management might also see this as an opportunity to buy the company at a dirt-cheap price — BBRY’s valuation currently sits at 0.42 times sales. The company also has $3.1 billion in the bank versus a market cap of $5 billion.
But to get a deal done, BBRY will probably need to find several private equity sponsors and also snag bank financing. Can it expect that kind of interest? Given BlackBerry’s grim prospects, it won’t be easy — in the latest quarter, the company lost $84 million, or 16 cents per share on revenues of $3.1 billion. Wall Street was looking a profit of 5 cents per share and revenues of $3.37 billion.
BlackBerry’s new products — which include three models of the Z10 smartphone as well as the Q10, which has a physical keyboard — have been duds. While they seem to be pretty good devices, it has been tough for the company to get consumer awareness. It’s really just too much to compete against biggies like Apple (AAPL) and Samsung (SSNLF). Things could get even worse over the next few months: Google (GOOG) is launching its Moto X, and looks ready to spend hundreds of millions to market the device.
BBRY does have some interesting assets, such as its patent portfolio, which has an estimated value of about $2.25 billion. At the same time, the core enterprise technology could also be attractive. The fact is that BlackBerry has systems that built for mission-critical security.
Given the assets and cash hoard, there’s at least some reason for a deal to be made. But it probably won’t fetch much of a premium because BBRY has essentially become a niche and has lost its leverage to compete against the big players in the market. Besides, it looks like a going-private transaction remains in the idea stage. And as seen with Dell (DELL), these transactions can get messy and distracting.
If anything, BlackBerry’s interest in a deal could be an indication that the company’s situation is only getting worse and its options are dwindling. In that case, the next quarter will probably be a disaster.
All things considered, it’s probably a good idea to just to stay away from the stock for now.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.