What Company Will Buy BlackBerry?

by Brad Moon | August 22, 2013 10:49 am

With BlackBerry (BBRY[1]) teetering towards what seems like its inevitable end, it’s worth asking — even if we’ve asked it before — who would be interested in buying the beaten-down company … and for what price.

Well, first things first, there’s almost no chance that another technology firm is going to step in and buy the entire company. Sorry, BlackBerry fans. But BBRY’s challenges go far beyond having a company with deep pockets providing the marketing cash needed to push the brand and its products back into the limelight.

The company’s marketshare is below 3%, its share of U.S. smartphone sales[2] in the minuscule 1% range and the crucial third place in mobile OS platform has been ceded to Microsoft (MSFT[3]) … all despite the release of BlackBerry’s new BB10 handsets.

While it may have pioneered the smartphone and just released all new handsets and an operating system to power them, BlackBerry is as good as gone, as far as smartphones are concerned.

The Q10 may well represent the pinnacle of QWERTY keyboard-equipped smartphones, but the physical keyboard is largely a relic of the feature phone era. Even among business users, the physical keyboard has become a niche product … and most consumers don’t want it.

As for BB10, why pay for a new mobile OS with negligible marketshare and have to assume the cost of maintaining and developing it when Google (GOOG[4]) will give you Android — by far the most popular mobile operating system — for free?

Still, there are components of BlackBerry that could prove valuable to the right buyer — particularly its presence in the enterprise space and its secure network. BlackBerry Enterprise Server now supports iOS and Android, making it more attractive to businesses that need to support iPhones and Galaxies as part of the BYOD movement.

With that in mind, companies looking to expand their enterprise services business — such as IBM (IBM[5]), Hewlett-Packard (HPQ[6]) or even Dell (DELL[7]) — might be interested in picking up this part of BlackBerry in an attempt to grab the customers, even if they ultimately ditch their BlackBerry installation. Bloomberg says IBM reportedly made a pitch for this business in 2012[8].

On its own, there’s speculation BlackBerry’s enterprise software and secure network might fetch $1 billion apiece.

There is also BlackBerry’s patent portfolio — always a valuable asset in these days of technology litigation. The company holds patents covering a range of wireless and mobile technologies (including some it acquired from bankrupt Nortel, BBRY’s predecessor[9] as Canada’s biggest technology company).

Depending on how they’re valued (and bidding on technology patents is always a bit of a crapshoot) analysts estimate they could be worth anywhere from $2 billion to $ 5 billion[10]. MIT Technology Review recently suggested that BlackBerry’s encryption patents[11] could well prove to be its most valuable asset.

BlackBerry also owns QNX, the developer of embedded operating systems it acquired in 2010 for $200 million in order to rush BB10 to market. That QNX division still has value; as TechCrunch points out, its software powers roughly 60% of car infotainment systems[12] globally.

And even as BlackBerry’s smartphone business shrinks, QNX continues to grow. Last week QNX announced it signed a partnership with Panasonic (PC[13]) to develop new in-car infotainment systems[14] for American, European and Japanese auto makers.

Then there’s the cash. BlackBerry is still sitting on $2.8 billion in cash and short-term equivalents.

With a market cap in the $5.5 billion range — and the expected premium to be paid on a purchase — there are very few companies that could afford to buy BlackBerry outright, even if they wanted to.

Chinese tech giant Lenovo (LNVGY[15]) has been a rumored suitor in the past[16]. With the success it had buying and turning around IBM’s PC business and its push into mobile, a BlackBerry purchase could even make sense. However, with BlackBerry still a big presence in highly sensitive government agencies in Canada and the U.S., the Canadian government will be under pressure to block any such deal.

Next, there’s still Prem Watsa and Fairfax Holdings (FFH[17]), the equity firm that already holds 10% of BlackBerry shares. Watsa, who has been openly bullish on the company and its long-term prospects (paying an average of $17 per share for the stake[18]), stepped down from BlackBerry’s board when the “For Sale” sign went up, citing a potential conflict of interest.

Considering BlackBerry had mused about going private just days before, the possibility Pensa might lead such a charge is not outside the realm of possibility.

Canadian pension boards buying BlackBerry is also a possibility. With the loss of Nortel and public concern about Canada falling behind the technology innovation game, there’s a desire in some quarters to prop up BlackBerry as a national asset. Pension boards certainly have the capital to do so and can be more patient than typical investors. Canada Pension Plan — which already holds 4.6 million shares in BlackBerry — has said it would “take a hard look” at a private BlackBerry.

Meanwhile, Quebec’s Caisse de depot de placement du Quebec (the pension plan for that province’s retirees that manages $180 billion in assets), also holds BlackBerry shares and has said it would consider investing if it were to go private[19].

At the end of the day, we still don’t know who might buy BlackBerry or for how much. BB10 came … and fizzled. So it seems unlikelythat  Blackberry — bleeding subscribers and losing market share — can continue making a go of things on its own.

However, the list of potential buyers is a short one and the company could ultimately be worth anywhere from its $5.5 billion market cap to more than double that if sold in pieces.

The one sure winner in any BlackBerry sale looks to be CEO Thorsten Heins. After being promoted to running the company, his salary rose to $1 million annually[20]. If he manages to sell the company (at which point it’s assumed he would be replaced as CEO), he stands to collect a cool $55.6 million payout[21].

As of this writing, Brad Moon didn’t hold a position in any of the aforementioned securities.

Endnotes:
  1. BBRY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBRY
  2. share of U.S. smartphone sales: http://news.yahoo.com/blackberry-u-market-share-plummets-just-1-q2-180059078.html
  3. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  4. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  5. IBM: http://studio-5.financialcontent.com/investplace/quote?Symbol=IBM
  6. HPQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HPQ
  7. DELL: http://studio-5.financialcontent.com/investplace/quote?Symbol=DELL
  8. reportedly made a pitch for this business in 2012: http://www.bloomberg.com/news/2013-08-21/blackberry-headed-for-breakup-amid-phones-woes.html
  9. BBRY’s predecessor: http://www.bloomberg.com/news/2011-07-01/nortel-sells-patent-portfolio-for-4-5-billion-to-group.html
  10. $2 billion to $ 5 billion: http://bgr.com/2013/08/14/blackberry-patent-portfolio-value/
  11. BlackBerry’s encryption patents: http://www.technologyreview.com/view/518476/encryption-patents-could-be-blackberrys-biggest-asset/?utm_campaign=socialsync&utm_medium=social-post&utm_source=twitter
  12. 60% of car infotainment systems: http://techcrunch.com/2013/08/13/qnx-locks-down-key-contract-with-panasonic-reminding-us-that-blackberry-still-has-some-shine-for-buyers/
  13. PC: http://studio-5.financialcontent.com/investplace/quote?Symbol=PC
  14. develop new in-car infotainment systems: http://www.qnx.com/news/pr_5657_1.html
  15. LNVGY: http://studio-5.financialcontent.com/investplace/quote?Symbol=LNVGY
  16. has been a rumored suitor in the past: http://investorplace.com/2013/01/lenovo-buying-rim-makes-sense-but/
  17. FFH: http://studio-5.financialcontent.com/investplace/quote?Symbol=FFH
  18. paying an average of $17 per share for the stake: http://www.theguardian.com/technology/2013/aug/13/prem-watsa-blackberry-leading-bidder
  19. it would consider investing if it were to go private: http://www.ipolitics.ca/2013/08/16/quebecs-caisse-would-consider-blackberry-investment-ceo-says/
  20. his salary rose to $1 million annually: http://www.therecord.com/news-story/2606457-heins-challenged-over-salary-experience-at-rim-annual-meeting/
  21. he stands to collect a cool $55.6 million payout: http://business.financialpost.com/2013/08/16/blackberry-ltd-ceo-thorsten-heins-stands-to-make-55-6-million-if-he-sells-company/?__lsa=f81b-1450

Source URL: http://investorplace.com/2013/08/who-if-anyone-might-buy-blackberry/
Short URL: http://invstplc.com/1nzs5Ki