by Darryl McKinnon and Fernando Commodari
Recently we’ve posted about why BlackBerry should remain publicly traded & in Canada:
It’s not clear what the next few days will bring, but there are several options:
Looking at the Fairfax deal we can try to understand the synergies to it. We can try to figure out why it may or may not make sense. With the facts being that if the BlackBerry management team, and the army of employees under them, were not able to complete the transition to date, why would Fairfax be able to do so? What mobile technology background does Prem Watsa have that BlackBerry currently doesn’t? There is none! What social media/network experience with on site ads for BBM Channels does this deal bring to BlackBerry? Again, none!
The Fairfax deal makes no sense except for Fairfax to get their original investment back out of BlackBerry. Firstly, the Board (with Prem Watsa, as a member) put the incentive in place for Thorsten Heins to sell BlackBerry and receive a massive payday by doing so. Then, in return, the BlackBerry CEO agrees to an ultra low sales price, a day after the stock price was trading higher. Within the agreement to sell BlackBerry to Fairfax is a financial clause that if BlackBerry was to take another offer for the company, Fairfax is to receive $150 million. We’ve seen deals where if the buyer backs out there is a financial penalty to be paid to the company that was to be bought. We’ve never seen a deal where if the seller finds a better offer they have to pay the original buyer! This clause is simply ridiculous! It’s set to ensure Fairfax gets paid handsomely for their efforts. Yet there’s no benefit for your average shareholder that has been vested in BlackBerry during the difficult times and still truly believes in the company and their technology!
Understanding the above, one asks the question, “Why would Fairfax set up a deal that begs for a superior offer?”- Fairfax has no interest in BlackBerry. They are a financial insurance company. They want their money back; and they’ll get it. It helps greatly if you’re at the table on both sides of the deal.
So what’s the end game then? Is it a sale of BlackBerry by any means possible? The assets are clear, the value is obvious, to those select companies that make it their business to know, BlackBerry’s current competition: Google, Apple, Microsoft, Facebook, Lenovo among others. All these companies have been or are currently rumored to be looking at BlackBerry to buy the company for its assets that the Fairfax deal has priced at half of book value. A steal by any assessment!
Knowing we are fast approaching November 4th, barring direct government support:
there is more than one form of support that could work.
This support could come from one of the aforementioned prospective BlackBerry suitors. One can make a clear business case for anyone of these potential suitors to take a substantial stake in BlackBerry, instead of buying the company. Supporting the company with an infusion of cash and the perceived stability created from the newly formed partnership, would substantially lead to gains for both partners in the resurgence of BlackBerry. A partnership has to be a match or fit that works for the two parties, and allows beneficial gains for each, from the union. With “partnership” being the key word, let’s, for the sake of a number, select a 49% stake from all of the current potential bidders and look at what the mutual benefits might be.
The synergies between BlackBerry & Facebook make sense, so let’s start there as many of the benefits can be repeated with some of the other prospective partners.
“A strong partner like FB would ensure the cash they need to complete transition while maintaining R&D, it would bring a fresh new appeal to the BBRY brand and surely increase device sales. It would bring Instagram, followed by other top apps and stop the BBRY’s dead news but hopefully it will force a radical change of management. I think the German guy failed and he was still too close to Mike Lazaridis. BBRY needs new and outsider blood in the management team and surely a brand new marketing team made of under 35’s super talented people.”
[We take issue with the under 35 part of the quote—LOL!]
Let’s say Facebook bought a 49% stake in BlackBerry and that the two companies started to work together. Facebook doesn’t make hardware. It’s not in their DNA. The deal instantly gives FB a huge stake in a massive hardware market with fantastic potential. Let’s admit it, hard work has been done with BB10. The foundation has been laid. The future is bright, yet again what BlackBerry needs is a bit more time and more intelligent and sustained marketing across the globe.
“They’ve [FaceBook} been pushing for their own platform for a while, and are obviously not thrilled with how Google is dealing with them. They pushed an update that allowed Facebook to bypass the Play Store as far as updates are concerned, and Google changed the terms of service on them, forcing apps to go through the Play Store for updates. Seems like they’re trying to get away from Android, they just don’t have any other option. Not sure BlackBerry would be a good fit, but maybe they just want to keep their options open?”
Time and marketing are what Facebook can provide for BlackBerry. By doing so they can drive the value of the deal and return huge value in their new hardware alliance/division. Facebook speaks to over 850 million users. They are in a premium position to get the much needed word out about BB10, with direct marketing and ads on their pages.
Facebook could also bring the mobile advertising expertise to assist the emerging BlackBerry Social Network, BlackBerry Channels. Facebook could even have its own exclusive channel!
Let’s say Apple takes a 49% stake in BlackBerry. Even though Apple is ultra popular, the fact remains that they are losing the battle to Google and Android (think Samsung!). By supporting BlackBerry, Apple could again provide the time and money needed to complete the transition, that BlackBerry needs. Apple, by doing so, acquires a second front to battle Android. BlackBerry and Apple could work together improving Apple’s security. As BlackBerry grows, Apple retains the 49% of revenues. This would be similar to the rescue that Microsoft and Bill Gates offered Apple, years ago.
Let’s say Google buys a 49% stake in BlackBerry. This, as with the other prospective partnerships, would provide the time and funding for BlackBerry to market its new OS. Google could retain extra revenue, and share patents (so could any other partner!). Google could advertise on BlackBerry Channels exclusively, using it’s expertise in on-line ad placements. Additionally, Google is still first and foremost a service provider. They could develop their apps for BlackBerry and Google could be rewarded (like any other partner) with BlackBerry’s security/BES10 & enterprise offerings. If Google were to do this, it would lessen the view they might be approaching monopoly status with Android. This is similar to the incentive Microsoft had with Apple back in the late 1980s.
Let’s say Microsoft invests in a 49% stake in the company. A non-compete agreement and cross IP sharing deal could be made, as with Google and Apple, or even Lenovo. This would give MS a serious new suite of security and MDM offerings to give it an edge over its competitors, Apple’s, iOS and Google’s, Android. Microsoft could seed BlackBerry OS10, diluting Android’s and iOs’ reach. Honestly, though, with its own strategy of seeding Windows 8, cross platform, we don’t see Microsoft buying a stake in BlackBerry for anything but the patents and BES10/NOC.
It is not clear that Samsung would want to partner with BlackBerry, as it has no more to gain than say Microsoft, Apple or Google. Samsung is developing its own OS and already has its own version of Android that is very successful. It is neck and neck in the running with Apple for shear volume of hardware out in the global market.
This company is like Lenovo, but with a bigger hardware presence outside its own borders. Sony could benefit from the new BlackBerry 10 OS on its handsets, helping to differentiate it from Android and iOS or even Windows 8. Also, Sony, like Lenovo, would have security advantages using the BlackBerry OS10 on cell phones, which might lead to easier access to the BlackBerry NOC/BES10 than for even Lenovo. Sony had a partnership with Ericsson which never amounted to larger market shares. It might be willing to take a chance with a new BlackBerry partnership. We note that BlackBerry OS 10 phones were left out of the Japanese market by BBRY. Could this be a way to entice Sony with exclusivity in Japan, in exchange for its financial backing?
Let’s say Lenovo took a 49% or less stake in the company. Currently Lenovo has no mobile OS to call its own. Gaining a toe hold into BB10 may actually benefit them the most. By only having a 49% or less holding in BlackBerry, the security regulators would be hard pressed to frown upon the deal, if BlackBerry retains confidential the NOC and security side of the business. Together, BlackBerry and Lenovo, could dominate the Asian markets. Lenovo (like Facebook) would benefit in new ways that all the others wouldn’t, via the much needed mobile hardware/software and services expertise that BlackBerry would bring. BlackBerry would gain the financial backing it needs to finish its transition to BlackBerry 10 and machine to machine ventures with the new BBM, NOC/BES10 services. This partnership offers both sides benefits, as in the case with Facebook, whereas any prospective Microsoft, Google, Apple partnership, would most benefit BlackBerry. Any control of BlackBerry by the latter three companies or even Samsung, would most likely lead to a sell off and break up of BlackBerry.
Maybe, in the end, the biggest motivator that each one of these prospective partners has to enter into a new partnership with BlackBerry is to simply stop one of the others from accomplishing it first. Also, any prospective partner could get an advantage, in addition to the patents, and NOC/BES10, in the new machine to machine world via BlackBerry’s QNX:
News is breaking everyday that supports BlackBerry’s market offerings of Security first, with its unique MDM able to control not only Blackberry devices, but also iOS and Android devices. A cloud capability is also coming soon. Security is a marketable feature and BlackBerry needs to do a better job of advertising it, not only to enterprise grade customers but also to their everyday consumers who would be leery to learn about the databases of SMS and e-mail messages Google collects.
In summary, BlackBerry needs capital to market its new BlackBerry 10 portfolio and to buy it time to do so while completing its transition to the new platform while bringing new NOC services to the public/enterprise, BES10, BBM and BBM Channels. The two most obvious/often recognized suitors that would also gain most from a partnership with BlackBerry, are Lenovo and Facebook. Sony would also gain as much, if not as prominent a suitor. It’s not likely that Facebook has the assets on hand to flat out buy BlackBerry. Even if Lenovo could do so, it would face regulatory issues in Canada and the USA, leaving a partnership option the only path to move forward. Apple, Microsoft and Google, would have less to gain from a partnership with BlackBerry, having their own hardware/software vertically integrated, already. These three companies, as well as Samsung, would most likely use the patent portfolio and the NOC/BES10 secure servers/software to their advantages in gaining access to enterprise clients.
Stay tuned, as the cat will be let out of the bag, on or before November 4, 2013! Ofcourse, BlackBerry may decide to stay the course, on its own, public and Canadian, having acquired a second wind. Or, perhaps Mike Lazaridis might come into the picture, as part of the Fairfax deal or with other partners. What does your crystal ball say will happen? Tell us below in the comments!
UPDATE November 1, 2013 11:00 am:
The lines are drawn and the sides for battle have been determined! The Rockstar consortium including the partners, Apple, BlackBerry,Microsoft, SONY and Ericsson, are engaged in a lawsuit against Google and everything Android (Samsung, HTC, Huawei);
BlackBerry has new BFFs in its consortium partners, and one of these companies, or Lenovo, or Facebook, is on the right side to help BlackBerry as discussed above! Check this out:
Google, Samsung Sued by “Rockstar” Consortium
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