Yesterday, we reported that Fairfax Financial has submit a takeover agreement to BlackBerry in order to start proceedings for a final proposal and vote. Well in that story we alluded to the fact that another company, Cerberus Capital Management of New York, is looking into our beloved BlackBerry. Feels like we are entering the age of Mass Effect. Love that game. Anyways…
Now with a $500MM refund in taxes paid, BlackBerry may be able to curtail the losses from the previous quarter and show a little bit of life in the near term. Shareholders may be silently rejoicing; this is excellent news. While the $500MM in cash and rumblings of what is presumably a competitive offer may fizzle out and lead to nothing, it’s good to know BlackBerry may not be promptly wed to it’s “high school sweetheart”, so to speak. But for me, I’m excited regardless. This can potentially spark renewed interest from various other entities that may have more buying power and more capital to bring in what it takes to either revive the business or deliver more to the shareholders if a buyout bidding war ensues.
A week or so ago, I would’ve said the exact opposite of what I’m about to say, but I feel this has merit, so here goes.
A bad fiscal report is a good thing in this case. While it shows a current struggle for an overall fiscally conservative company, it fails to tell the entire story. Obviously said company is worth more than the $9 per share offering price by a Prem Watsa and Fairfax Financial – especially as many of our readers were quick to point out that he once said that he thinks BlackBerry is worth $40 a share as it stood back in April. Seeing how the $9 a share price is a significant discount to the $40 of implied value the company carries to some degree – that’s a 500% discount by the way – I’m sure there’s some wiggle room there for another company to come in – another company with a good grasp of how to successfully rescue or sell – and offer more. Prem Watsa is no stranger to financial success. He’s a mastermind. He knows that $9 is an absolute steal when he can turn the company around and flip a $4.7B investment to 5-6 times more, who wouldn’t jump on this opportunity. But if he’s as smart as we have and other news outlets have painted him, he knows the won’t get away with an $9 per share bid on BlackBerry.
The fact that he has that much confidence to invest his money in something like this is a positive sign. A smart investor would not invest in a failing institution.
And now others are either picking up on this or the $500MM tax refund that is due back to BlackBerry in a few months. Essentially, how it works is that BlackBerry pays income taxes in many different countries and is affected by international tax laws as well. The refund usually comes from the Canadian government and takes 6-9 months to post. But it’s cold hard cash and a way that BlackBerry can potentially save itself from a massive amount of debt and add some security to the financed portion of the buyout by any company coming in to take the reigns.
In short, expect share prices to spike as the offer gets revamped to stave off competitive offerings, or compensate for a tax refund cash infusion.
Maybe BlackBerry knows what it’s doing. Shareholders are certainly holding out for better news to save some long investments. Let’s hope for the best.