Fairfax-Led Consortium to Buy BlackBerry (BBRY) in $4.7 Billion Deal

Tickers in this article: BBRY

NEW YORK ( TheStreet) -- Beleaguered smartphone manufacturer BlackBerry  has  signed a letter of intent  with a Fairfax Financial Holdings -led consortium, pending a period of six weeks' due diligence. Fairfax already owns around 10% of BlackBerry common shares and will put forth $4.7 billion, or $9 per share, to take the company private.

The six-week period of due diligence, ending November 4, will allow BlackBerry to solicit more attractive offers compared to the Fairfax bid.

"The go-shop process provides an opportunity to determine if there are alternatives superior to the present proposal from the Fairfax consortium," said Chair of BlackBerry's Board of Directors Barbara Stymiest in a company press release.

BlackBerry trading was halted for the second day in a row during the announcement of the deal, resuming at 2 p.m. EST. By day's end, BlackBerry was 1.09% higher to $8.82 and 109.21 million shares changed hands compared to its average daily volume of 31 million. Overall, BlackBerry led the S&P 500 which was down 0.47%.

"We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carrier and employees," said Prem Watsa, Fairfax Chairman and CEO. "We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy ... delivering superior and secure enterprise solutions."

BlackBerry share value plummeted 20% on Friday after the company reported less-than-favorable second-quarter figures. For the quarter ended August 30, BlackBerry downgraded its revenue guidance to $1.6 billion, significantly lower than the expected $3.06 billion. The company sold only 3.7 million of its phones during the quarter and had to write-down $1 billion of unsold inventory.

TheStreet Ratings team rates BlackBerry as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about its recommendation:

"We rate BlackBerry a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Communications Equipment industry and the overall market, BlackBerry's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $630 million or 11.39% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • BlackBerry reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, BlackBerry swung to a loss, reporting -$1.20 versus $2.24 in the prior year.
  • 41.06% is the gross profit margin for BlackBerry which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -2.73% is in-line with the industry average.
  • This stock has increased by 45.90% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in BlackBerry do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.