New York/Toronto: Fairfax Financial Holdings Ltd, which has until 4 November to firm up its $4.7 billion bid for BlackBerry Ltd, has yet to arrange financing to take the company private, said people with knowledge of the matter.
Fairfax’s advisers, Bank of America Corp. and Bank of Montreal, have been rebuffed by other lenders they contacted to help finance a bid, said the people, who asked not to be named because the process isn’t public.
BlackBerry gave Fairfax seven weeks to line up the financing, while it also sought competing offers. One potential counterbid could come from Cerberus Capital Management Lp, which is teaming up with BlackBerry co-founders Mike Lazaridis and Doug Fregin to explore a deal, one person said. That group also is in discussions with Qualcomm Inc. about having the chip maker join the coalition, said the person.
“Fairfax may not have been able to articulate a business plan," said Sachin Shah, a strategist in special situations and merger arbitrage at New York-based Albert Fried and Co. “That may be the reason its bid has struggled," he said.
Cerberus, a New York-based private-equity firm that specializes in distressed assets, has signed a non-disclosure agreement with BlackBerry to gain access to its financials, one person said. Fairfax still may end up pulling together the funds to see its bid through, or it could ask BlackBerry to extend the 4 November deadline, the people said.
Qualcomm, meanwhile, will make a decision about whether to join Cerberus’s effort after reviewing BlackBerry’s finances, said one of the people. The company—the top supplier of chips for phones and tablets—gets the majority of its profit from licensing patents, which cover much of the fundamental technology in wireless networks. A stake in BlackBerry would give the company access to additional patents, as well as mobile-phone hardware and software.
Credit Suisse Group AG was one of the banks contacted by Fairfax in search of financing, one of the people said. It passed on being part of a group of lenders when it found tepid demand among loan investors, said the person. Banks are reluctant to finance the leveraged buyout of the struggling smartphone maker, which has reported losses for five of the last seven quarters, the people said.
Fairfax president Paul Rivett didn’t return messages seeking comment. Fairfax CEO Prem Watsa declined to comment on his company’s bid when asked on an earnings conference call Friday. Mike Sitrick, a spokesman for Lazaridis and Fregin, also declined to comment, as did representatives of BlackBerry, Cerberus, Qualcomm and Credit Suisse.
Fairfax, BlackBerry’s largest shareholder, made its $9-a- share tentative offer on 23 September, agreeing to negotiate a definitive deal by 5pm on 4 November. The Toronto-based firm has yet to name any partners or say whether it’s raised any money for the bid. Fairfax also hasn’t said what will happen if it can’t do so.
If BlackBerry strikes a deal with another buyer before 4 November, it would owe a $157 million break-up fee to Fairfax. If Fairfax makes a definitive agreement with the smartphone maker, and a better offer comes in after the deadline, the fee would rise to about $262 million.
Watsa, 63, who founded Fairfax in 1985, makes contrarian bets that often pay off, including a stake in the Bank of Ireland that has risen 141% since Fairfax made the investment in July 2011. The offer to buy BlackBerry, which has lost more than 90% of its value since 2008, is his biggest publicly disclosed deal yet.
With the bid deadline approaching, BlackBerry shares dropped 2% on Friday to $7.77, closing almost 14% below the offer. The shares have tumbled 35% this year as the company’s gamble on a new operating system failed to revive its fortunes. While that’s bad news for long-suffering shareholders, the slide has made the company even cheaper to those exploring a takeover.
Lazaridis, who was co-chief executive officer of BlackBerry until last year, said on 10 October that he’d hired Goldman Sachs Group Inc. to help him explore a bid. He’s working on the effort with Fregin, who used to run the company’s operations. The two men together own 8% of BlackBerry’s shares.
The company had been counting on the new line-up of BlackBerry 10 phones introduced in January to reinvigorate the struggling brand. Instead, the first of those new models, a touch-screen phone called the Z10, lacked distinguishing features or the variety of applications offered by Apple Inc. and Samsung Electronics Co. Ltd.
Sales continued to plunge. On 20 September, the company took a $960 million charge to write off unsold Z10 inventory and said it would cut one-third of its workforce. Three days later, Fairfax, which owns 9.9% of BlackBerry, made its tentative offer.
BlackBerry has two sets of assets that have particular appeal. Its patent portfolio could fetch between $1.6 billion and $3 billion, according to a range of analysts from Raymond James Financial and MDB Capital Group. Its enterprise business, which manages fleets of email servers for its corporate and government customers, may fetch as much as $1.1 billion, according to Raymond James.
SAP AG had been evaluating whether parts of the company, including the enterprise business, may be attractive, a person familiar with its interest said last month. SAP’s interest appears to have waned, however.
Werner Brandt, chief financial officer of the Walldorf, Germany-based company, told the Euro-am-Sonntag newspaper that BlackBerry doesn’t fit in our strategy. Bloomberg
Doug Alexander in Toronto and Ian King in San Francisco contributed to this story.
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