By Hugo Miller
BlackBerry Ltd. got a tentative $4.7 billion buyout offer Monday from a group led by its biggest shareholder, forging a path to go private after a new line of smartphones failed to catch on.
The group led by Fairfax Financial Holdings Ltd. would offer $9 a share, a 3.1 percent premium over BlackBerry’s closing price last week. The consortium is still seeking financing for the offer.
The offer came as BlackBerry Ltd., facing mounting losses and dwindling buyout prospects, is slashing its workforce and product line and refocusing on the market that first brought it success: corporate customers.
The Waterloo, Ontario, Canada-based company is cutting 4,500 jobs and taking a writedown of as much as $960 million for unsold inventory of its Z10 phone — a touch-screen device unveiled in January as its answer to the iPhone.
Chief Executive Officer Thorsten Heins had bet the Z10 would become BlackBerry’s new flagship, restoring cachet and prosperity to the one-time smartphone leader. Instead, the model fizzled with consumers and contributed to the company’s weakest quarterly sales in six years.
Attempts to find an acquirer have been fruitless. Fairfax Financial Holdings Ltd., BlackBerry’s largest shareholder, has contacted private-equity firms in a bid to line up a buyer. With no immediate prospects of an acquisition, the company has to zero in on business customers and try to shrink its way to profitability, said Colin Gillis, an analyst at BGC Partners LP in New York.
“It’s the end of an era: BlackBerry as we knew it is over,” said Gillis, who recommends selling BlackBerry’s stock. “They’re refocusing on a much smaller niche enterprise-focused company and that’s a reasonable strategy for them.”
Shares are down about 94 percent from 2008.
RBC Capital Markets, Paradigm Capital Inc. and Jefferies & Co. downgraded the stock. Credit Suisse Group AG upgraded it to neutral, saying its risks are already reflected in the price. Robert W. Baird also upgraded the shares to neutral.
BlackBerry, credited with inventing the first smartphones more than a decade ago, once sold products that were so popular and addictive they were known as CrackBerrys. In recent years, the company failed to keep pace with Apple and Samsung, which offered better Web browsing and a wider range of applications. BlackBerry’s share of the global smartphone market shrank to 2.9 percent in the second quarter from 4.9 percent a year earlier, according to IDC. It has fallen to fourth place behind Google’s Android, Apple’s iOS and Microsoft’s Windows Phone platform.
Still, the company continues to unveil new products based on its revamped BB10 operating system, including a model last week that will be the largest touch-screen BlackBerry ever. It also opened up its BlackBerry Messenger instant-messaging service to Android and iPhone users over the weekend — though that effort also hit a snag. The rollout was suspended Sunday because of technical difficulties.
The Z10 was an attempt to show that BlackBerry could compete in the touch-screen arena. The company is best known for its physical keyboards, which bankers and lawyers have prized for their ability to crank out emails. With its lackluster sales, the Z10 failed to demonstrate that BlackBerry can challenge the broader market for touch-screen smartphones.
While BlackBerry isn’t abandoning touch screens, it will pare its product line from six models to four and only target corporate and professional customers, the company said last week. Still, even formerly loyal business customers are wavering. Morgan Stanley, for instance, is holding off on upgrading its employees to BB10 because of concerns that the Canadian company may not back its platform long-term.
An acquisition of BlackBerry could help the product live on, though that prospect also may be dim. While the company reiterated last week that it’s open to a potential buyout, the latest results may have made it that much harder to find a suitor, said Michael Genovese, an analyst at MKM Partners in Greenwich, Conn. BlackBerry’s main benefit may be the services revenue it extracts from existing users, he said.
“I don’t think anyone wants these handsets. I don’t think anyone even wants this software,” said Genovese, who rates BlackBerry a sell. “The only kind of company I can see buying them is private equity. ... ’’
As of June, BlackBerry had 72 million subscribers — down from 76 million in the previous three months.