BlackBerry's Stalking Horse Bid by Watsa

NEW YORK (TheStreet) -- It seems like BlackBerry (BBRY) has been on sale forever. It first announced it had hired bankers to "explore alternatives" more than 15 months ago.

Until Monday, those bankers didn't produce any results.

The company hired more bankers earlier this year. They also led to no results.

So, midway through last quarter (when, with hindsight, we can tell clearly the company realized it was in trouble), BlackBerry sent out smoke signals it wanted someone to buy it -- and quick.

Yet, nothing still.

So, after a crushing set of quarterly results preannounced on Friday because it would have been horrible to simply wait and announce them during the regularly scheduled quarterly call on Friday, BlackBerry's board realized it had to do something to halt the company's interminable slide.

If you thought the pre-announced earnings were bad -- in which the company missed Wall Street estimates by 50% and a majority of its phones sold were three-year-old BB7s instead of the new BB10s -- they are only going to get worse from here.

Just imagine if you are a big CIO for a government agency and you were thinking of placing a big order for BB10s. How can you justify that now after the company's Friday results? Seriously.

BlackBerry's board knows this. I said Friday that there is no way this company made it to its next earnings call as a standalone public company. It was panic time.

So BlackBerry turned to its largest shareholder (at 10%) and former director Prem Watsa, founder, chairman, and chief executive of Fairfax Financial Holdings in Toronto.

Watsa's cost basis is around $10/share.

If I was him, I just want my money back from this trade.

So, he made a conditional offer for BlackBerry for $9/share. That values his stake at about $463 million.

But it's conditional on him getting financing. He told the Wall Street Journal his consortium is likely to include several Canadian pension plans, but that's not certain.

His offer also says that BlackBerry gets to shop itself for six weeks now. If it finds someone who wants to spend a penny more than $9 a share for BlackBerry, Watsa gets $150 million as a breakup fee.

That breakup fee -- plus whatever he gets above and beyond $9 for his shares -- will make him solidly profitable on what many would call a busted trade.

It's a very canny move by Watsa.

If I was him, there's no way in the world I would want to take this company private. How are you going to be able to turn around the operations you haven't been able to do while as a public company?

There's this idea that you get all this freedom as a private company because you're not subject to the pressures from Wall Street analysts. But I just don't buy it.

As a private company, BlackBerry will still have limited cash and likely more debt, of which it has none now. It would probably torch whatever remaining staff it has, try to milk its remaining subscribers for as long as it can. But most people go private in order to go public at some point in the future.

I just don't see that as a possibility anytime soon for a skinnied down BlackBerry.

It appears this is a stalking horse bid by Watsa. Everyone and his brother had kicked the tires of BlackBerry but hasn't been inclined to make an offer. Now, it's going once, going twice....

Watsa likely hopes that a Microsoft ( MSFT), Cisco ( CSCO) or IBM ( IBM) is inclined to finally make a formal offer.

Whether it works or not, it's likely Watsa's best move in a bad situation.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Eric Jackson is founder and Managing Member of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd. In January 2007, Jackson started the world's first Internet-based campaign to increase shareholder value at Yahoo!, leading to a change in CEOs in 2007. He also spoke out in favor of Yahoo!'s accepting Microsoft's buyout offer in 2008. Global Proxy Watch named Jackson as one of its 10 "Stars" who positively influenced international corporate governance and shareowner value in 2007.

Prior to founding Ironfire Capital, Jackson was President and CEO of Jackson Leadership Systems, Inc., a leadership, strategy, and governance consulting firm. He completed his Ph.D. in the Management Department at the Columbia University Graduate School of Business in New York, with a specialization in Strategic Management and Corporate Governance, and holds a B.A. from McGill University.

He was previously Vice President of Strategy and Business Development at VoiceGenie Technologies, a software firm now owned by Alcatel-Lucent. In 2004, Jackson founded the Young Patrons' Circle at the Royal Ontario Museum in Toronto, which is now the second-largest social and philanthropic group of its kind in North America, raising $500,000 annually for the museum. You can follow Jackson on Twitter at or @ericjackson.

You can contact Eric by emailing him at

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