The Deal: Analysts Raise Concerns About BlackBerry Deal

NEW YORK (The Deal) -- Days after announcing massive layoffs and a realignment of its business, BlackBerry  (BBRY) said Monday it has agreed to a sale to a group led by Fairfax Financial Holdings that values the company at $4.7 billion.

The sale follows an effort by BlackBerry CEO Thorsten Heins, who took over in 2012, to revive the company's flagging smartphone business.

The deal would pay $9 per share for BlackBerry, contingent upon due diligence that would be completed by Nov. 4. BlackBerry can continue to seek buyers during the six-week period when the buyout group reviews the company.

Shares of BlackBerry rose 8 cents, or close to 0.9%, to $8.80 on Monday afternoon.

The Nasdaq halted trading of the shares briefly Monday before the announcement. Shares were also halted on Friday, before the company announced that it would lay off 4,500 employees and stop making phones geared toward consumers.

Jan Dawson of Ovum plc noted two challenges with the leveraged buyout.

"One is that simply taking BlackBerry private doesn't solve the primary problem that they don't have a strategy for making up the gap left by cratering phone sales," he explained. "The second thing is that, usually, when you take a company private, it's because there is a long-term strategy in place and you don't want to deal with the challenges of pleasing investors on a quarterly basis while you're executing that long-term strategy."

With BlackBerry, there is no evidence that the company has found a strategy that can turn the business around.

In light of the problems, Kevin Smithen of Macquarie Capital suggested in a Monday report that financing could raise other issues.

"Most importantly, in our opinion, is that the acquiring group has yet to obtain financing for the $4.7 billion deal," Smithen wrote. "In our view, it will be difficult to raise financing due to high cash burn and large subscriber losses."

The deal could require $2 billion to $3 billion in debt, which would be difficult to swing on the $184 million in 2015 EBITDA that Macquarie expects BlackBerry to generate.

BlackBerry launched a review of its strategic options in August. If BlackBerry finds another buyer, and the Fairfax group doesn't lower its offer, the company could face a 30 cents per share termination fee.

Should BlackBerry and Fairfax reach a definitive agreement and another buyer emerges, the penalty could jump to 50 cents per share.

Macquarie's Smithen described the fees as "onerous" and wrote that they "could scare away other potential bidders."

Fairfax owns approximately 10% of BlackBerry's common shares, which it would contribute to the buyout.

The Fairfax group received financial advice from Don McLellan, Byron Trott and John Dills of BDT & Co.; a Bank of America Merrill Lynch team including Rob Giammarco, Gary Kirkham, Jack MacDonald, Michael Altmin, A.J. Murphy and Doug Ingram and BMO Capital Markets banker Dan Barclay.

Scott Petepiece, Jason Lehner and Sean Skiffington of Shearman & Sterling and McCarthy Tetrault lawyers Gary Girvan and David Tennant provided counsel to the group.

BlackBerry hired JPMorgan Securities and Perella Weinberg Partners in August to explore strategic options.

The company also retained Skadden, Arps, Slate, Meagher & Flom lawyers Steve Arcano, Neil Stronski, Chris Barlow and Richard Grossman, as well as Dean Kotwal and John Emanoilidis of Torys.

Written by Chris Nolter 

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