BlackBerry’s two founders, Mike Lazaridis and Doug Fregin, were close on Friday night to forming a consortium to bid for the struggling smartphone maker with Cerberus Capital Management and Qualcomm, the California chipmaker.
Such a deal could resolve the doubts about the future of a company that once led the smartphone revolution, but which has become a marginal and threatened player in the age of Android and the iPhone. Its market value had fallen from a peak of $78.2bn to just $4bn on Friday.
The Lazaridis-fronted consortium would be bidding against a group led by Prem Watsa’s Fairfax Financial which has a Monday deadline to complete due diligence and formalise a tentative $4.7bn cash offer.
However, bankers familiar with the negotiations said on Friday that Fairfax, BlackBerry’s largest shareholder with a stake of about 10 per cent, had struggled to find financing. The Cerberus-backed team could wait until Monday to see whether Mr Watsa bids and on what terms.
Both the BlackBerry founders and Cerberus had already signalled that they might make separate bids and had signed non-disclosure agreements to see BlackBerry’s accounts.
People close to the discussions noted that by joining forces and adding Qualcomm, which supplies chips for BlackBerry phones, the co-founders would have access to ample funding.
A spokesman for Mr Lazaridis and Mr Fregin declined to comment. However, the two men, who together own about 8 per cent of BlackBerry, are said to be concerned that the company could be broken up unless they step in with a rescue bid.
Mr Lazaridis, the technical wizard behind the original BlackBerry handsets, was co-chief executive of the company until the end of February last year when he and Jim Balsillie stepped aside to make way for Thorsten Heins, who had been chief operating officer.
BlackBerry’s share price has remained below the $9-a-share price tentatively offered by Fairfax, closing on Friday at $7.77. This reflects investors’ doubts about Fairfax’s deal and about whether any other firm bids would emerge.
As part of the tentative agreement with BlackBerry, the Fairfax-led consortium was given six weeks to conduct due diligence and agreed to a “go shop” clause under which BlackBerry could “actively solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals”.
But the break clause was lopsided. Whereas BlackBerry agreed to pay a break-up fee of at least $160m if a better offer materialised, Fairfax could walk away for free.
Some analysts including Pierre Ferragu, of Bernstein Research, have expressed doubts about the Fairfax deal, noting that Mr Watsa has yet to provide details of the other members of his consortium, or his funding sources.
Mr Ferragu told his clients last month that the proposed Fairfax deal was “unlikely to close” while noting that “of the total $4.7bn required in the transaction, Fairfax is not committing any more than it already had when it increased its equity stake last January to about $480m total”.
Some bankers also questioned Fairfax’s ability to fund a bid. “It was always a phantom bid done more in hope than with real money behind it,” said one banker familiar with the process.
Mr Watsa says he remains committed to the deal, telling the Associated Press in September that Fairfax was not in the business of making offers and then walking away or changing its terms.
“We’ve got a record of 28 years of completing what we’ve done. We’ve never renegotiated,” Mr Watsa said. “We thought long and hard before we offered $9 a share and we’re not in the business of offering a number and at the last minute changing the figure.” Mr Watsa has since declined to comment.
There has been speculation about other potential bidders, including IBM, Microsoft, Samsung, Lenovo, Google, Cisco, SAP, Amazon and Facebook.
Most have declined to comment, although SAP’s finance chief appeared to rule out his company in comments he made 10 days ago. Microsoft, which is acquiring Nokia; Samsung; Lenovo; and Google through its Motorola unit all have smartphone operations and could benefit from BlackBerry’s existing technology.
Samsung and Lenovo could use the new BlackBerry 10 operating system to cut their dependence on the Android operating system supplied by their partner and rival, Google. However, a bid by either would have to be approved by Canada’s government and security agencies, which might object in particular to Lenovo, which is headquartered in China.
IBM and Cisco could be interested in BlackBerry’s secure services for business customers, including new mobile management software that enables corporate IT chiefs to manage both company BlackBerrys and other manufacturers’ handsets that employees bring to work.
Yet most analysts doubt whether any “trade” or purely financial buyer would be interested in acquiring all of BlackBerry, particularly while it is in the midst of such a radical restructuring.
They believe, however, that some tech companies could want parts of BlackBerry such as its secure private data network and BBM messenger service, or its extensive patent portfolio, which some analysts value at between $1bn and $3bn.
One way or another, it should become clear next week whether BlackBerry has a future as an independent handset maker battling for a slice of the global smartphone market or be broken up and sold.
BlackBerry still has about $2.6bn in cash reserves, but with the company burning through an estimated $500m in cash per quarter, the clock is ticking.