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TheStreet Open House

BlackBerry Finds Buyer of Its 'Prosumer' Strategy at $4.7 Billion

Stocks in this article: BBRYAAPLGOOGMSFTNOK

NEW YORK ( TheStreet) -- Just one trading day after BlackBerry (BBRY) decided to quit the consumer smartphone market and become an enterprise focused handset and IT services firm, the company has found a willing buyer in Fairfax Financial at $9 a share, or $4.7 billion.

Put differently, in the eyes of shareholders, BlackBerry may last less than one trading day as an enterprise-focused company.

For investors who have long argued the BlackBerry's stable of assets such as its mobile device management business and its BBM messaging system are worth in excess of the company's total market value, Fairfax's letter of intent on a $9 a share takeout may be a disappointment. Monday's proposed deal, however many strings are attached, may also prove to be a relief to investors who worried BlackBerry was on a path to extinction after it spent years on a money losing effort to compete against Apple (AAPL) and Google (GOOG) in the consumer smartphone market.

Either way, BlackBerry's Monday disclosure of its letter of intent with Fairfax marks a whirlwind few days. Last week, BlackBerry announced a major restructuring that will cut the company's workforce by 40%. It also pre-announced its second quarter earnings, which was taken by some analysts to be the biggest-ever miss in the tech sector.

BlackBerry said its second-quarter revenue would come in at $1.6 billion, or about half of consensus Wall Street estimates. Of that revenue, 50% is expected to come from BlackBerry's various IT and security services. Meanwhile, the company forecast an impairment of as much as $960 million as a result of a glut of unsold BlackBerry Z10 handsets.

CEO Thorsten Heins said on Friday that BlackBerry will trim its smartphone portfolio to four so-called "prosumer-centric" devices. "Going forward, we plan to refocus our offering on our end-to-end solution of hardware, software and services for enterprises and the productive, professional end user," Heins said in a statement.

It is hard to isolate BlackBerry's letter of intent agreement with Fairfax as independent from the company's restructuring announced at the end of trading on Friday.

Shares in BlackBerry fell nearly 20% late on Friday when the company pre-announced its weak earnings. Now, on the heels a $9 a share letter of intent, Prem Watsa, Chairman and CEO of Fairfax, said in a statement the investment firm is delivering "value to shareholders."

Value, in this instance, appears to presume investors either had forgotten about Friday's tumultuous trading or that they thought BlackBerry was realistically worth far less than $9 a share.

All told, the timing of BlackBerry's Friday pre-announcement and its Monday commitment is extremely curious. If Dell's (DELL) hotly-contested management buyout got activist investor Carl Icahn worked up to the point that he is now using Twitter and the op/ed pages of the Wall Street Journal to preach for shareholder rights, this deal might be construed as even less fulfilling.

BlackBerry couldn't immediately be reached by email or telephone for comment.

Still, that is not to say that either move by BlackBerry is not in shareholders best interests. There haven't been many credible private equity or activist investors willing to put their money behind a breakup of BlackBerry.

Microsoft, in trying to become a vertical player in the smartphone market, invested in Nokia (NOK), and not BlackBerry.

It's not hard to explain the dearth of buyers. The company is burning cash and is clearly at a life or death turning point.

BlackBerry was unable to sell many of the smartphones it had bet its future upon and some analysts even speculate that wireless carriers are changing terms of their handset carriage agreements with the company so that they are taking phones on consignment.

The financial toll has been devastating and worse yet, there is no sign of a bottom in sight.

Meanwhile, it is unclear whether BlackBerry can truly re-focus on the enterprise market as it said it would on Friday. BlackBerry's security and services offering does win praise from business professionals, however, without a commitment to the company's handset business it is unclear whether those users would flee to other networks.

For any long-time shareholder, Fairfax's price is likely to be disappointing. Worse yet, it could deprive investors of upside from its long-awaited restructuring into an enterprise business. After all, it was only on Friday that the company finally said will no longer chase after the non-professional smartphone user.

But, if that is the case maybe someone like Carl Icahn or another large shareholder will come in with an alternative strategy for BlackBerry during the company's go-shop period.

At least BlackBerry now appears to have a bidder at $9 a share or $4.7 billion, subject to receiving financing commitments from Bank of America Merrill Lynch and BMO Capital Markets and Fairfax's own due diligence. Watsa, the Fairfax head, was previously a board member at BlackBerry so it is unclear how a due diligence process would uncover any new financial insight.

One analyst note on Monday called BlackBerry's Friday restructuring "dark days" for the company, which was once the largest by market cap in Canada. While that is true, at least there is now light at the end of the tunnel.

-- Written by Antoine Gara in New York.

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