BlackBerry sale is off – turns to investors for $1bn cash
BlackBerry has ditched its <a href='../FullArticle.aspx?newsid=1631'>planned sale of the business </a>to Fairfax Financial Holdings, and has instead entered into an agreement with Fairfax and other institutional investors for $1 billion cash. As part of the deal, BlackBerry CEO, Thorsten Heins, will resign.
Fairfax and further investors have agreed to accept convertible bonds to provide BlackBerry with instant cash with which to support itself. Shares of BlackBerry dropped 19% in premarket trade on the news.
Fairfax has agreed to acquire the $250 million principal amount of the convertible bonds. The transaction is expected to be completed within the next two weeks.
Upon the closing of the transaction, John S. Chen, who is currently a director at Wells Fargo & Company and The Walt Disney Company, will be appointed executive chair of BlackBerry's Board of Directors and, in that role, will be responsible for the strategic direction, strategic relationships and organisational goals of BlackBerry.
Prem Watsa, chairman and CEO at Fairfax, will be appointed lead director and chair of the compensation, nomination and governance committee.
Head of BlackBerry, Heins, and David Kerr, who has been a director at BlackBerry since 2007, intend to resign from the Board at closing. In addition, Heins will step down as chief executive officer at closing and Chen will serve as interim CEO pending completion of a search for a new CEO.
Heins was appointed as CEO of BlackBerry in January 2012. Prior to that, he was one of BlackBerry's two chief operating officers and, previously, senior vice president for the handheld business unit. Heins came to BlackBerry in December 2007 from Siemens, where he served as CEO of various business divisions in the communication business, chief technology officer and member of the Group Board of the Siemens Communications Group.
Said Barbara Stymiest, chair of BlackBerry's Board: 'Today's announcement represents a significant vote of confidence in BlackBerry and its future by this group of preeminent, long-term investors. The BlackBerry Board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders. This financing provides an immediate cash injection on terms favourable to BlackBerry, enhancing our substantial cash position. Some of the most important customers in the world rely on BlackBerry and we are implementing the changes necessary to strengthen the company and ensure we remain a strong and innovative partner for their needs.'
Under the terms of the transaction, the Purchasers will subscribe for $1 billion aggregate principal amount of 6% unsecured subordinated convertible debentures, convertible into common shares of BlackBerry at a price of $10.00 per common share, a 28.7% premium to the closing price of BlackBerry common shares on 1 November, 2013.
Based on the number of common shares currently outstanding, if all of the $1 billion of bonds were converted, the common shares issued upon conversion would represent approximately 16% of the common shares outstanding after giving effect to the conversion. The bonds have a term of seven years.
Chen commented: 'I am pleased to join a company with as much potential as BlackBerry. BlackBerry is an iconic brand with enormous potential, but it's going to take time, discipline and tough decisions to reclaim our success. I look forward to leading BlackBerry in its turnaround and business model transformation for the benefit of all of its constituencies, including its customers, shareholders and employees.'
The closing of the transaction is subject to customary conditions, including approval from the Toronto Stock Exchange.
Smart Chimps thinks: The marriage is off. An interesting turn of events at BlackBerry. Some people like to cling on for dear life until the bitter end, and that seems to be the case here. BlackBerry has been through some incredibly tough times, and to turn this damaged baby around is not going to be easy. Who can blame Heins for leaving? One thing is for sure, Smart Chimps would not want to be the new CEO of this business. What can be done to save it? We don't know.