Hold Me Back, or I Might Buy Blackberry!

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Long suffering BlackBerry has a potential buyer. Coincidentally, or not, the $4.7BN offer comes from Fairfax Holdings, who are already BlackBerry's largest single shareholder, at ~10%. Their offer is for $9 per share, which is a small premium over the latest share price, which is after its 17% plunge due to its announcement that it has an astounding $1BN (!) in unsold devices.

Given that BlackBerry is, apparently, collapsing, why would Fairfax throw good money after bad? It is difficult enough to accept the losses on its 10%, but to actually buy the other 90%??

There are two realistic possibilities here:

  1. Watsa, the CEO of Fairfax, has a vision that we do not. He has a successful history as a contrarian, and thus has a vision for which he is willing to take a $4.7BN risk and bet against the market.
  2. They don't really want it.

If they don't want it, why would they make the offer?

The insight comes from reading the terms of the Letter of Intent (LoI) signed between BlackBerry and Fairfax. It reads like a billboard screaming, "how weak is BlackBerry?"

Fairfax can pull out at any time, and is not even required to actually make a binding offer. BlackBerry must pay a $150MM penalty if it accepts another offer.

To this writer, it looks very much like Fairfax actually wants out of its 10% holdings, but not at the current price. It's offer is actually an attempt to put a floor on the price for BlackBerry and encourage other buyers to step in, thus allowing Fairfax to pull out. If Fairfax sold now, it would have to do so at less than $9 per share, and its dumping of 10% would precipitate another steep drop in the share price, compounding its losses.

Fairfax seems to be saying, "hold me back!"