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Is BlackBerry Headed for a Major Direction Shift with Fairfax Having a Bigger Say in them?   

By EI Staff | November 05, 2013

Could BlackBerry find value in software and services than in devices and hardware?

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Tuesday, November 4, 2013 saw Waterloo-based BlackBerry announce to the market that it had entered into an agreement with Fairfax Financial and other investors who would invest US$1 billion in BlackBerry through a private placement of convertible debentures. They also announced that CEO Thorsten Heins would step down as BlackBerry’s CEO and from its Board once the debenture transaction was completed.

Fairfax Financial has been in discussions to acquire BlackBerry since September this year, with due diligence expected to be completed by November 4, 2013. BlackBerry has been on the lookout for a buyer ever since it has seen its sales declining this year and a steady erosion of its market share. At its Q2 earnings release in September, it reported that quarterly losses had increased almost 10 times and revenues had halved versus Q1 earlier. The number of smartphones shipped in the quarter also fell sharply reaching just 3.7 million in Q2 from the 6.8 million devices shipped in Q1.

The convertible debenture transaction with Fairfax and other investors is expected to be completed over the next two weeks, following which Thorsten Heins would be stepping down from his role as CEO. For BlackBerry, the deal could mean that Fairfax won’t be buying it outright but would rather start playing a major role in decision making and the direction they should be headed. Many would also question the need for a cash infusion at this stage with BlackBerry having $2.6 billion in cash and investments as of August 31, 2013.

John S. Chen, who previously headed Sybase Inc., and is widely believed to be responsible for its turnaround would be appointed as the Executive Chairman of BlackBerry’s Board and serve as its Interim CEO. Sybase was acquired by SAP AG in 2010. John Chen would stay on in the role of Interim CEO till the search for a new CEO is completed.

Under his leadership, BlackBerry could lean more towards the software and services side and away from its primary devices and hardware business. Hiring Mr. Chen, who has strong background in enterprise and mobile software at Sybase, to the position of Executive Chair and Interim CEO provides further backing to this approach. Whether John Chen manages to change BlackBerry’s fortunes in the short term would need to be seen, especially with the decisions he takes once the debenture deal is concluded. 

Fairfax Financial’s decision to abort the buyout deal could also signal that they would like to see if BlackBerry could still be bought on track through investments and major business realignments rather than having to go all out to acquire them, and regretting it later.
 

Fairfax Financial's Q3 2013 Earnings Call Transcript from November




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