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Why BlackBerry Shareholders Should Cheer $4.7 Billion Deal With Fairfax

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It was less than a week ago BlackBerry (NASDAQ: BBRY  ) announced a couple of potentially exciting roll-outs. First, its latest, greatest smartphone -- the Z30 -- was introduced as BlackBerry's, "biggest, fastest and most advanced smartphone" to date.

On the same day, BlackBerry said that BBM, BlackBerry's popular messaging service, was finally coming to all the Google Android OS and Apple iPhone users interested in a secure, real-time chat app. Ironically, BlackBerry introduced BBM for the masses under the mantra, "BBM For All." Unfortunately, almost as quickly as BBM was made available for download to Android and iPhone folk on Sept. 21, it had to be pulled because of "issues."

It gets worse -- much worse
It was a tough week for BlackBerry and its fans. After announcing preliminary fiscal Q2 2014 results that were downright depressing, the fumbled BBM rollout only added to the pain.

First, the very bad news. Leading up to this Friday's official earnings release, BlackBerry determined it would be a good idea to brace the market for what was coming. Turns out, what's coming is a nearly $1 billion loss for the quarter due, in large part, to a massive inventory writedown. But the bad news doesn't stop there.

BlackBerry expects about 3.7 million smartphones were sold in its fiscal Q2, hardly any of which are its new Q10 or Z10 alternatives. That compares to just over 6 million units sold in the second calendar quarter. Revenue should be around $1.6 billion, according to BlackBerry's preliminary announcement, which falls woefully short relative to both last year's fiscal Q2 and sequentially.

Perhaps most painful, at least from a people perspective, was the inevitable news that BlackBerry would lay off approximately 4,500 employees, equal to about 40% of its workforce. Also, BlackBerry will trim its smartphone offerings from six models to four, and refocus its energies toward the commercial market. A nice thought, but with the proliferation of the "bring your own device" to work craze, even that doesn't inspire confidence.

Yet another blow
Considering its preliminary earnings news, not to mention its well-documented problems finding a buyer, the last thing BlackBerry needed was a hiccup of any kind. But that's exactly what happened shortly after making BBM available for free download to Android OS and iPhone users.

After an "unreleased version of the BBM for Android app" made its way online, over 1.1 million iPhone and Android users downloaded the apps in a mere eight hours, according to BlackBerry. That should have been cause for BlackBerry and its fans to celebrate the small win at a time when anything remotely positive is welcome. Alas, it was not to be.

Apparently, the BBM downloads were too much of a good thing. Later the same day, BlackBerry said all those downloads caused "issues" that it's is still trying to sort out. Consequently, iPhone users that already downloaded the BBM app can still utilize it, but those that didn't get the chance are out of luck for now. As for Android users, which account for 80% of the global smartphone OS users, not only are they unable to download BBM, those that did have had the apps disabled. Add in second-place Apple's 14% market share, and BBM just became unavailable again to nearly every smartphone owner in the world. Ouch.

What now?
Unfortunately, problems with BBM remain. Yesterday BlackBerry tweeted, "We will provide you an update on timing as soon as we can. Teams are working non-stop."

The timing of BlackBerry's latest miscue was poor. When good news, any good news, was needed, BlackBerry did what it had done so often in the recent past -- dropped the ball. BlackBerry's latest snafu could have been extremely costly for investors if the stock had continued its slide while waiting for a suitor.

A buyer had to be found for BlackBerry, and soon, because as the BBM problems demonstrated, BlackBerry was becoming less and less attractive with every passing day. The $9 a share deal offered by current BlackBerry shareholder Fairfax Financial to take BlackBerry private is already bemoaned by some as too little. After its recent earnings disaster and the problems with BBM, it's clear things were only going to get worse for BlackBerry shareholders, not better.

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Comments from our Foolish Readers

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  • Report this Comment On September 24, 2013, at 1:16 PM, TheBigPayback wrote:

    While it's bad for BlackBerry, can at least a reasonable attempt be made to state the facts and not confuse the issues?

    The author writes:


    BlackBerry expects about 3.7 million smartphones were sold in its fiscal Q2, hardly any of which are its new Q10 or Z10 alternatives.


    BlackBerry actually sold 5.9 million smartphones to end consumers in Q2, of which they are recognizing sales for 3.7 million because they're clearing out the channel.

  • Report this Comment On September 24, 2013, at 4:11 PM, soundblaster16 wrote:

    33% of this company's total shares outstanding have been SHORTED.

    That is, ONE OUT OF THREE shares, has been borrowed from somewhere,

    or somebody's account and sold. Do that many persons have margin accounts?

    Because, legally, I think "they", the brokerages need to have your permission

    to lend the shares to a shortseller - who profits by selling those shares, pocketing

    the cash, and buying back the shares at a lower price to return to the account

    they borrowed from. Traditionally, if you allow others to borrow your shares

    (one lends anonymously in margin accounts) you get paid interest, some cash

    per month, until those shares are returned to you - if ever. The total number of

    shares outstanding is a finite number, and not supposed to change. But what

    if an unethical broker took shares from somebody's account - without his knowledge,

    or permission - to give to another to sell them to another? There would then be

    two account holders claiming ownership of the same shares. I think because of

    widespread corporate malfaesance in the investment community, this has happened.

    And now, a cabal of managers (who have a fiscal duty to protect shareholder interests),

    politicians, and financial journalists, are willing to look the other way as companies

    such as Dell, and Blackberry, are "privatized" so that the evidence of their wrongdoing

    might be wiped away.

  • Report this Comment On September 24, 2013, at 4:14 PM, soundblaster16 wrote:

    Blackberry has about 3 billion in cash, and zero debt.

    Moreover, though the hardware side of the business is

    failing, or has failed, their software subscription service

    business is thriving - Blackberry collects monthly fees from

    Enterprise customers who need to make the smartphone

    devices their employees bring to the workplace, secure.

    BES will now be making Android and iOS smartphones

    secure, and be collecting subscription revenues from

    Enterprise customers for those smartphones, and for

    Blackberry devices - if some employees still prefer to use

    Blackberry devices... That revenue stream is about 250

    million US PER MONTH, and GROWING.

    The so-called 900 million "loss" recorded in 2Q14 is

    actually a noncash charge - inventory (smartphones)

    needed to be "written off" of the balance sheet, as

    that asset is now essentially worthless. It is like how

    in a grocery store operation, unsold milk past expiry

    date, must be "written off" the balance sheet, as

    being worthless : No cash is lost, or spent, when this

    noncash charge is recorded... Sure, money was spent

    when those smartphone devices were created, or purchased,

    but it was accounted for at that time. But the Press has

    focused on such numbers without telling people what those

    numbers mean.

    The future for Blackberry is to continue collecting a growing

    revenue stream as more and more smartphone devices,

    regardless of their operating system, connect to the

    Blackberry Enterprise Server Network... So, Why has this

    company been "given away"?

    (Note : Watsa can borrow 5 billion, and pay off that loan in

    half a year, with Blackberry's own 'cash on hand', and 'cash

    flow' - which is again, about 250 mill. US per month.)

  • Report this Comment On September 24, 2013, at 4:17 PM, soundblaster16 wrote:

    With zero debt, and 3 bill. in cash or thereabouts on the balance

    sheet, it is not difficult - or ought not to be difficult - to raise 5 billion

    to purchase this company and use Blackberry's own cash on hand

    and growing cash flow to pay that loan - Blackberry's subscription

    revenues are growing, from the present 3 bill. a year as Enterprise

    customers will need to pay Blackberry "subscription revenue on a

    recurring basis" as their employees use iOS and Android

    based smartphones to connect to Blackberry's BES offering...


    why are not other companies making offers? I think it is because

    they are not being allowed to - I think the CaNADIAN Government is

    allowing this purchase, to help bail out Fairfax Financial, using Blackberry's

    cash, and future cash flows - which seem inevitable since Enterprise

    customers need their software to secure those smartphones which

    their employees are now bringing to the workplace. I suspect Fairfax

    has made some bad insurance policies, and is in danger of becoming

    insolvent. Well, that is a theory... Another

    theory, illegal short selling has resulted in more

    paper claims existing than there are actual

    shares - and now to avoid a massive financial

    panic, a massive collusion between members of

    the "so-called free press" and politicians, and

    corporate managers desires to "privatize" this

    company to make the problem go away. But

    it will not - for they committed this fraud are

    getting away with it. And so, they move closer

    to ... well, hell.

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