No sooner had I posited that BlackBerry shareholders shouldn’t bet on a “quick” auction (see prior post “BlackBerry: don’t bet on a frothy, ‘quick auction’” Sept. 5-13), The Sunday Times came out and said that Fairfax Financial (FFH:TSX), a 9.9% BBRY shareholder, had teamed up with our very own CPP Investment Board and other Canadian pension plans to finance a going-private of Canada’s highest-profile tech company. Wasn’t I the idiot!
Blackberry shares rose almost 7% yesterday on the story, even if it seemed strange to some of us that a British-based newspaper would be the only one to find out what two large Toronto-based institutions were doing behind closed doors. It’s not that CPPIB’s name hadn’t been linked to a BlackBerry bid over the past few weeks (see prior post “CPP Investment Board to take Blackberry private?” Aug. 9-13), it’s more that in the wake of partnering on a $6 billion acquisition of U.S. retailer Neiman Marcus, I was surprised that CPPIB CEO Mark Wiseman would have pitched his board on two less-than-obvious large deals in the same Board meeting. How much career risk does he want to take on, exactly?
As a tuck-in for an existing player, such as Samsung, Microsoft or Lenovo, an acquisition of BlackBerry might make huge sense. But as a private equity turnaround play, which is what a Fairfax/CPPIB bid would be, the strategy isn’t obvious. I get why Michael Dell wants to privatize his company (DELL:Q). He, like Starbuck’s Howard Shultz for example, is a gifted entrepreneurial visionary with a unique understanding of the company in question. Even then, turning around Dell won’t be easy given industry / consumer trends; certainly, the limited partners (such as we Canadians) behind private equity firm Silver Lake, which is Dell’s partner on the deal, take comfort that Mr. Dell is rolling a substantial amount of his own net worth into the deal. That Silver Lake is rumoured to have passed on RIM is noted.
For a bunch of reasons, I just don’t see the Dell parallel with RIM’s perhaps tougher situation. Where are Mike and Jim, for example, on the deal? Jim has definitely moved on, and as much as I suggested to Catherine Murray on BNN some weeks ago that Mike should come back as CTO and fix what’s wrong with the Q10, I’ve not heard a word about him getting behind any particular bid. The layoffs and cost cuts have already happened at RIM, which is taken from page one of the PE turnaround playbook. As for Fairfax, although its initial share purchases were well above current price levels, CEO Prem Watsa was able to average down as BBRY fell below $9 and even $8/share. Hanging around an auction to ensure a good price is realized makes sense to protect his firm’s 9.9% stake. But to find yourself as the only eventual bidder? That may not be the preferred outcome.
The “kick me” sign came off just as quickly as it went on this morning, with the media full of unsourced reports from various Canadian pension plans that they are “cool” to a BlackBerry bid. In essence, whatever you read in The Sunday Times about AIMCO, BCIMC, HOOPP, OMERS, OPB, OPTrust, PSP and/or Teachers playing along, whomever was speaking last night on behalf of their respective pension plan wanted to be sure to throw cold water on yesterday’s fully-financed report. CPPIB wasn’t directly mentioned as a Doubting Thomas, so for the moment its interest remains unclear.
The most scary bit of news for BBRY shareholders has to be that the Globe and Mail’s source says that Fairfax’s “preference” is to find an industry buyer for the company, rather than bid itself having now made the rounds of the world’s most appropriate co-investors and financiers for its own would-be takeover. Talk about throwing up your hands. If Fairfax is telegraphing that they are not bending over backwards to buy the company, surely other potential bidders (think Amazon, Facebook, Lenovo, Microsoft….) will take notice and adjust their bids downwards.
Of course, unnamed sources often have reasons to mislead journalists, intentionally or otherwise, so we have to take some of what we’ve read with a grain of salt. But I can’t see a scenario where the news of the past two days lends itself to a premium bid.