What Are BlackBerry's "Strategic Options"?
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BlackBerry (NASDAQ: BBRY) is up for sale. On Monday, management announced that it was setting up a committee to explore the company's "strategic options." But what does this mean for the troubled handset-maker.
No turnaround coming
For BlackBerry, the turnaround that was always on the horizon remains just out of reach. Earlier this year, the company released its BB10 operating system in a last ditch attempt to regain relevance in the smartphone industry and catch up to rivals like iOS and Android. But Monday's announcement is indication that BlackBerry's Hail Mary pass has failed.
Last quarter, the company sold only 2.7 million Z10 devices, falling well short of the Street's expectations. Many bulls are holding out hope that the keyboard-equipped Q10 would reverse the company's slide. But you should suspect that the BlackBerry management team is seeing some disappointing internal numbers roll in. Time to sell out while there's still something to salvage.
The trouble with valuing BlackBerry today is that one doesn't really know what the future of the firm looks like. Management is exploring all of its strategic options, which could include a joint venture, liquidation, or privatization. The company's valuation differs significantly in each of those scenarios.
It's BlackBerry's summer blow out!
The best bang for investor buck may be to just sell of the company in pieces. But how much would the company fetch at an auction?
Unsurprisingly, many analysts are valuing BlackBerry's hardware business at zero, given the lackluster BB10 launch. Rather, potential bidders are much more likely to be interested in the company's bank account, patent portfolio, and service business.
At the end of June, BlackBerry was debt-free while sitting on a pile of cash and investments worth $3.1 billion. Once you include the company’s library of patents, service business, and QNX operating system -- with an estimated combined worth between $2 billion and $3 billion -- and you get a liquidation price tag roughly in line with the company’s current market capitalization.
If true, it’s nothing short of a tragedy that perhaps the best way to maximize shareholder value from BlackBerry is through scrapping what was once an icon of Canadian business.
But there may be better options for investors than a fire sale. BlackBerry may represent an attractive acquisition to another technology player.
Microsoft (NASDAQ: MSFT) is often touted as a likely candidate on account of the company's big push into mobile. Microsoft could consolidate the bottom end of the smartphone industry and combine their strengths -- those being Microsoft’s growing media empire and BlackBerry’s experience developing hardware -- into a player capable of taking on Android and iOS. But, such a deal is unlikely because a partnership with Nokia makes so much more sense. The smartphone-maker’s products represent 80% of global Windows handset sales.
International Business Machines (NYSE: IBM) could also emerge as a bidder. The company has expressed interest in acquiring BlackBerry's network of highly-secure servers worldwide and this would play in well with IBM's own mobile device management strategies. After IBM carved out the pieces it wants, all that would be left are the unprofitable hardware business. The bottom line is that an IBM acquisition would spell the end of BlackBerry as we know it.
Another option for BlackBerry is to find investors willing to take the company private. Perhaps, a turnaround could be better engineered away from the prying eyes of Wall Street.
Prem Watsa, CEO of Fairfax Financial Holdings, stepped down from BlackBerry's board of directors. In addition, several Canadian pension funds have admitted that they would consider backing a BlackBerry privation if such a deal makes sense. But this is no sure thing either. Why would investors risk billions to take on the world's largest technology companies?
Foolish bottom line
If Monday's announcement is an indication of anything, it's that the BlackBerry turnaround is dead. BB10 will not save the company. But while management may have hung the 'For Sale' sign out the window, it's not clear if anyone will buy it.
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Robert Baillieul has no position in any stocks mentioned. The Motley Fool owns shares of International Business Machines. and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!