The group trying to buy BlackBerry for $4.7 billion will likely break up the company, wiping out its smartphone division while preserving BlackBerry's secure network services used by large enterprises globally. But one analyst said he hopes that's not the case.
"I don't believe that breaking up the company is the right way to go," said Jack Gold, an analyst at J. Gold Associates. "I believe there's more value in keeping the three parts - devices, services and collaboration - intact, which works better for longer term value."
Gold conceded that BlackBerry "still faces a huge mountain to climb to get back into the device marketplace, given the precipitous decline in sales."
Yesterday, a consortium led by Fairfax Financial Holdings of Toronto offered to buy Waterloo, Ontario-based BlackBerry for $4.7 billion, taking the company private in a deal slated to close by November 4.
At the end of last week, BlackBerry warned that it expects to report nearly $1 billion in losses for the last quarter and would cut 4,500 jobs from a workforce of more than 12,000.
Despite Gold's hopes for BlackBerry, another analyst, Carolina Milanesi of Gartner, said the group buying BlackBerry has little recourse. "What else could Fairfax do other than sell it off in parts?" Milanesi said. Fairfax has "no knowledge or assets to bring to the table, so how could they address the challenges that BlackBerry was facing?"
Gartner analyst Bill Menezes said Fairfax should focus instead on creating "sustainable, standalone businesses from the company's services business and patent portfolio." As cruel as it might sound, he added that Fairfax or another potential buyer should "jettison, close down or retain in much smaller scale a niche handset business."
Menezes said the $1 billion writedown of smartphones in Blackberry's September 20 statement shows that "the marketplace has moved on from BlackBerry handsets and it isn't coming back in any meaningful way."
Fairfax officials did not respond to a request to comment on plans for BlackBerry. Fairfax is BlackBerry's largest shareholder and controls 10% of the phone maker's stock. Fairfax CEO Prem Watsa, citing a potential conflict of interest, resigned from the BlackBerry board when a special committee was formed to look into a possible sale of BlackBerry in August.
Almost two weeks ago, reports surfaced that said potential bidders for BlackBerry were only interested in parts of the business and not the company's smartphones, such as the Q10 and Z10. Instead, bidders from private equity firms were said to be mostly interested in the BlackBerry 10 operating system that powers the company's smartphones, along with selected patents related to keyboards.
Some financial analysts have put the value of the secure network, with several network operations centres, at $4.5 billion alone, while a number of BlackBerry-related patents could be worth $3 billion. Also, BlackBerry has $3 billion in cash and investments.
Those elements alone could make the full company worth $10.5 billion. Meanwhile, the smartphone division is said to be a drain on profits, and would cost any buyer up to $2 billion to shut down.
Gold said Fairfax's bid is "probably the best possible outcome of several unattractive options for BlackBerry." He said taking the company private might lead to bringing back BlackBerry founder Mike Lazaridis as the CEO of a smaller entity.
"That could buy them some time to put the house in order," Gold said. "Being private would mean that Wall Street is not continuously breathing down their neck and provide them financial stability so that enterprise customers would not feel compelled to replace their phones for fear of losing business."
BlackBerry Messenger is the biggest potential growth engine for BlackBerry, Gold noted, and will grow beyond its 60 million users per month once problems that occurred during the weekend launch of BBM for Android and iPhone are resolved.
BlackBerry's services division also provides BlackBerry Enterprise Services software to enterprises, which moves the company into an aggressive market for mobile device management and mobile application management software. "The services division has some legs and could generate growth," Gold said.
Going private "is the best place for BlackBerry right now," agreed independent analyst Jeff Kagan. Motorola had to downsize and is a "limited success" as a part of Google, he said.
BlackBerry has slipped from its high point of controlling half the smartphone market for several years to about 3%. Under Fairfax, Kagan said, BlackBerry will be a "much smaller and less important player" but will at least survive for a while longer.