Talk about an anticlimax. After six weeks of backroom negotiations to sell BlackBerry Ltd. to a consortium led by Fairfax Financial Holdings Ltd., there is no deal and no plan. Shareholders get only a new lease on the miserable life of a fallen public company.
BlackBerry and its employees are better off for it. The breakup of Canada's former mobile star has been staved off – for now. The smartphone company even gets a new chief executive officer, $1-billion and another chance at proving it is not destined for the tech graveyard.
But Prem Watsa, chairman and CEO of Fairfax, did not fare quite so well. His initial plan turned out to be a dud of Z10 proportions. His Teflon credibility is now scratched.
Mr. Watsa is not the first to walk away from a highly conditional takeover offer. Had he said weeks ago, "You know what? We changed our minds," BlackBerry shareholders might have been more understanding.
But what makes this week's reversal so remarkable is how much energy Mr. Watsa put into convincing everyone his buyout was the real deal.
Apparently, Mr. Watsa underestimated how complicated it would be to turn around BlackBerry. The company could have bled to death, burdened by billions of dollars in debt at high interest rates. A leveraged buyout wasn't the right structure. Or so the official story now goes.
But how was this any news to anyone – least of all to Mr. Watsa?
With control of 9.9 per cent of the company's shares, the Fairfax boss sat on the BlackBerry board until Aug. 12, when he stepped aside. Maybe he didn't have a full appreciation of how rapidly the company's market position was eroding in all of its business lines. Surely, he couldn't have known the company would take a writeoff of nearly $1-billion for all the BlackBerry 10 phones that collected dust.
Still, it is hard to believe that Mr. Watsa was totally surprised by BlackBerry's second-quarter results when they were revealed in late September.
And even if he was, why keep raising expectations? On Sept. 26 – that's six days after BlackBerry warned of plummeting revenue, the big writeoff and 4,500 layoffs – Mr. Watsa told The Globe and Mail: "Our offer is a definite offer." And while none of Fairfax's partners were known publicly, he assured shareholders, "We've got more than we need."
He kept up the appearance that he planned to finalize the $4.7-billion (U.S.) deal until the very end – until Monday, when he revealed he was tossing away his $9-a-share offer, replacing it with a $1-billion cash infusion into BlackBerry that included, you guessed it, another set of unnamed investors. More troubling, he let all of his previous reassurances stand.
Investors had good reason to raise doubts about Mr. Watsa's conditional buyout plan. Fairfax was proposing to roll in its own stake without investing any additional money. Moreover, the buyer could walk away scot-free, while if BlackBerry entertained another buyout offer, it would have to pay Fairfax a break-up fee. All in all, it looked like a defensive move.
However, Mr. Watsa went out of his way to dismiss the naysayers. "We wouldn't put our name to such a high-profile deal if we didn't feel that at the end of the day that our due diligence would be fine and we'd be able to finance it," Mr. Watsa said to Reuters. Those statements were all the more convincing because he rarely argues his cases in public.
One potential partner was Alberta Investment Management Corp. Its CEO, Leo de Bever, was open to the idea of participating in BlackBerry's privatization, but said in early October that he was not presented with a convincing case. Instead, he described it as "the most bizarre deal I have ever been involved with."
Evidently, a new strategy was laid out in the final days. As soon as he cancelled his buyout and unveiled his new plan, Mr. Watsa brought in California tech executive John Chen and had current CEO Thorsten Heins packing his boxes. Fairfax is also committing an extra $250-million to the company.
Because Mr. Watsa is what he is – a respected contrarian investor with a long track record of making money – the investment community is unlikely to throw tomatoes at him. But this was not his finest moment. If he were any other deal maker, BlackBerry shareholders would be screaming for revenge.