Updated from 8:46 a.m. EST
NEW YORK (TheStreet) -- BlackBerry (BBRY) shares are plunging, down 16.5% to $6.49 as the portable device maker is abandoning its sale to Fairfax Financial Holdings. Instead, the Waterloo, Canada-based technology company is selling $1 billion worth of convertible debt with Fairfax buying $250 million worth of the offering and CEO Thorsten Heins on his way out.
Under terms of the transaction, the debt will have a 28.7% premium to BlackBerry's shares as of Nov. 1, 2013, or $10 per share. The debt has a term of seven years, have a coupon of 6%, and represent approximately 16% of all BlackBerry's common stock, after the conversion.
"Upon the closing of the transaction, John S. Chen will be appointed Executive Chair of BlackBerry's Board of Directors and, in that role, will be responsible for the strategic direction, strategic relationships and organizational goals of BlackBerry," the company said in a press release. "Prem Watsa, Chairman and CEO of Fairfax, will be appointed Lead Director and Chair of the Compensation, Nomination and Governance Committee and Thorsten Heins and David Kerr intend to resign from the Board at closing."
Chen is the former CEO of Sybase, which was acquired by SAP in 2010. Heins will step down as BlackBerry's CEO, and will be replaced on the interim by Chen, while the company looks for a new CEO.
"I am pleased to join a company with as much potential as BlackBerry," said Chen in the release. "BlackBerry is an iconic brand with enormous potential -- but it's going to take time, discipline and tough decisions to reclaim our success. I look forward to leading BlackBerry in its turnaround and business model transformation for the benefit of all of its constituencies, including its customers, shareholders and employees."
Toronto-based The Globe and Mail was the first to break the news.
The company could not be reached for comment for this story.
Following the announcement, analysts on Wall Street were decidedly bearish, noting the events did not bode well for the company's future. Here's what a few of them had to say.
Canaccord Genuity analyst T. Michael Walkley (Hold, $6 PT)
"Following very disappointing August quarter results, continued market share deterioration, and the unsuccessful funding of Fairfax Financial's $9/share bid, we believe a sale of BlackBerry is no longer imminent and few -- if any -- candidates remain to purchase the company in its entirety. While we maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability, we now believe a breakup is more likely than an outright sale and fundamentals will continue to deteriorate over a now-longer public sale process under new management. We lower our price target from $7 to $6."
Credit Suisse analyst Kulbinder Garcha (Neutral, $7 PT)
"We think BlackBerry's underlying business model is broken and is very challenging to turn around given the ultra-competitive nature of handset industry, thus we expect FCF cash burn of $984mn/$707mn in FY14/15. On handsets, our concerns surrounding BB10 traction remain, as the specs and price points of the devices are aimed at the high end of the market, limiting the opportunity with entrenched competitors. On the services side, we expect revenues to continue to decline, as the company faces high ARPU subscribers leaving the aging BB7 platform while it has limited ability to monetize the BB10 platform."
TD Securities analyst Scott Penner (Hold, $8.50 PT)
"Given our view that the most likely scenario was an extension of the Fairfax due diligence period, this is negative news. The market is now dealing with an information vacuum from BlackBerry that may last until the Q3/14 earnings call in late December. We see the stock trading at the low end of our $6.50 -- $11.00 range until some clarity on the go-forward plan emerges (and maybe below the range once a likely wave of short covering runs its course). Our low value scenario is made up of cash at Q4/15E of $1.8b ($3.41 per share plus patent value of $3.00 per share. Our higher scenario adds in ~$4.50 per share for our combined value of BES 10 services ($2.00), BBM ($0.76), MDM ($1.08) and QNX ($0.57), and the potential of these assets keeps us a HOLD. That being said, the Nov. Q3 should reflect the prolonged uncertainty, and further competitive pressures from the new iPhone launch."
--Written by Chris Ciaccia in New York
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