Analysis It could only happen at BlackBerry. A white knight rides to the company’s rescue, only for the horse to drop dead underneath him.
So much for Prem Watsa’s rescue mission. The man dubbed the “Canadian Warren Buffet” has at last gained control of the company, as “lead director”, but at what cost? Five weeks ago BlackBerry’s board agreed to be taken private by Watsa’s Fairfax, which was already BlackBerry’s largest shareholder, for [CA] $4.7bn.
Evidently Fairfax couldn’t find the backing (he most certainly could raise the debt) and the BlackBerry board didn’t receive any better offers by the deadline on Monday. Facebook, Cisco and Qualcomm have all been touted as potential partners – but Watsa was all they had.
Which means that BlackBerry remains in the coconut shy as a public company – obliged to bomb its investors with another set of quarterly earnings. Going private would have provided a safe haven from bad headlines, if nothing else, giving the board time to regroup away from the public soap opera.
The clumsy deal also means that BlackBerry is saddled with a significant new debt obligation of $1.25bn. Which, while smaller than its cash pile, carries an extremely high rate. At 6 per cent it’s as ruinous as a the PIIGS countries' long-term debt. The deal avoids a shareholder vote by a whisker – under NASDAQ rules (WSJ, registration required). And the uncertainty goes on.
On the positive side, the absentee CEO Thorsten Heins has gone. Heins had been invisible since the scale of the BB10 flop became apparent in July, and ominously, his name wasn’t on the open letter of reassurance (“You can continue to count on BlackBerry”) that ran as an advertisement in many newspapers last month.
Heins had an extremely difficult job but his costliest mistake was the delusion that the new platform BB10 could still be all things to all people. BB10 was late and wasn’t really ready at launch – but more importantly, it required hardware far beyond the price point that consumers were willing to pay. Two thirds of the global consumer market is looking for budget devices. BB10 is actually a very good specialist enterprise and professional choice (see our Z30 review to find out why), but BlackBerry needed to abandon the emerging markets before they abandoned BlackBerry – which they’ve done this year. While governments were aghast at the NSA revelations, BlackBerry continued to promote Alicia Keys' latest tour.
Heins’ replacement as caretaker CEO is John Chen, who saved Sybase and famously dodged the dot.com bubble. Officially, he’s merely an “interim” but Chen understands enterprise IT well, as well as how to survive in a market dominated by giants. This is a huge upgrade.
One of Chen’s first statements is apparently that he will “build up the company’s handset business”, according to one wire report – but we merely have Reuters’ word for that, and no direct quotes can be found to support it. Chen couldn’t really imply anything else, as anything that casts doubt about the future of BB10 hardware would kill the sales of BES10, which is BlackBerry’s steadiest long-term cash cow.
For 18 months BlackBerry hinted that it would welcome licensing partners, but none have stepped up to the plate. Ideally, BlackBerry would retain a core design and R&D team and seek a Nexus-style partner to complete the integration, and manufacture the hardware. This would free resources to specialist beef up sales and support for enterprises. BlackBerry’s own network is an enterprise cloud that’s waiting to happen – another asset that needs focus and some creative thinking, as a platform for business services. Losing those low value Mexican and Filipino BBM-ers has an upside.
Against the ongoing catastrophe of BlackBerry’s failed comeback and sales collapse this year, the success of BBM looks quite surreal. It’s topping the Google Play charts and heading for 100m users. It’s exactly what Facebook needed, and it’s hard to imagine why Zuck’s M&A team walked away. Perhaps because they felt they could snap it up for even less if they waited.
The Watsa takeover is surely a zenith for The Company Formerly Known As RIM. At last, at least, it’s got some outsider talent at the top. ®