Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
After a first half of the month that contained just one losing day, the second half of September is starting to live up to its historical reputation a little bit more. On Monday, the S&P 500 (SNPINDEX: ^GSPC ) and the Dow Jones Industrial Average (DJINDICES: ^DJI ) fell 0.5% and 0.3%, respectively, for a third consecutive day of losses.
While it's a bit of a fool's errand to try to explain daily price moves, today's preferred narrative is that investors are now concerned about Congress' ability to meet next Monday's deadline to keep the government functioning.
If so, that concern showed up in the CBOE Volatility Index (VOLATILITYINDICES: ^VIX ) , which rose 9.1% to close at 14.31. The VIX, Wall Street's "fear index," is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.
BlackBerry shareholders get a $9-per-share lifeboat
Commenting Friday on BlackBerry's (NASDAQ: BBRY ) disastrous profit warning, I wrote that the company "is a casualty of the "mobile wars," and if it doesn't find an acquirer soon, it could well end up a fatality." Its franchise may be burning, but at least its directors haven't been playing the fiddle as it burns. Today, BlackBerry announced that it has signed a letter of intent to be acquired by a consortium led by Canadian insurer Fairfax Financial for $9 per share (Fairfax was already the largest shareholder, with a 10% stake).
As I see it, an immediate sale was the best shareholders could hope for in order to realize the maximum equity value for a business that is bleeding value at a breakneck pace. Assuming the Fairfax-led consortium is able to secure financing and that the due diligence process does not uncover any nasty surprises, that's exactly what shareholders will get.
As for the $9 per share price -- there is little expectation that a competing acquirer will materialize with a higher offer – investors should probably be grateful for any premium over Friday's closing price of $8.73. If I were an acquirer, I'd be bidding at a discount; in fact, I'd go as far as to say that when a business is declining as fast as BlackBerry is, it's difficult to overestimate the margin of safety one ought to require to invest.
Which brings me to my last point: What is the rationale of Fairfax CEO Prem Watsa for this deal? It looks to me very much like he is doubling down on an investment gone sour. He has modeled Fairfax on Berkshire Hathaway (NYSE: BRK-B ) and is sometimes referred to as "Canada's Warren Buffett." Indeed, he has even hired Buffett's favorite investment banker, Byron Trott, to advise on the transaction.
However, as I wrote back in August when BlackBerry put itself on the block: "A loss-making, rapidly declining business in the technology industry? It's the very antithesis of a Berkshire investment/ company." For individual shareholders, the game is now over. For Watsa and his co-investors, it's just beginning -- with a hand Buffett would never have picked up.
BlackBerry down. Who will be left standing in the "mobile wars"?
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