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BlackBerry: IP Monetizing a Top Priority

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BlackBerry's (NASDAQ: BBRY  ) patent portfolio should be valued more than the current stock price. The proposed offer from Fairfax Financial for just $9 a share, or $4.7 billion, is just a come-on to start the acquisition process. Though the offer might seem high given the fact that BlackBerry has been languishing for years. But, its patents alone are worth an estimated $2 billion to $3 billion, and smartphone patents are in high demand.

As a result, Fairfax might end up battling a tech giant like Microsoft (NASDAQ: MSFT  ) (NASDAQ: MSFT  ) (NASDAQ: MSFT  ) and be forced to make a higher offer for BlackBerry. While others speculate Fairfax is simply trying to draw in more offers and cash out its 10% BlackBerry stake. If anyone does buy BlackBerry, most of the value would come from the company's patent portfolio. Chris Marlett, CEO of MDB Capital Group, an intellectual property-focused investment bank, values Blackberry's patents at $2 billion to $3 billion.

Only a select few smartphone players, private-equity firms, and other technology companies would pay the billions of dollars that analysts say BlackBerry's IP is worth. After all, those patents include, covering hand-held design features, enterprise email, messaging, encryption, security, touch screens, text prediction, and more.

BlackBerry's 7,500 U.S. patents, granted and pending, are of limited long-term value to private-equity investors such as Fairfax. For those types of businesses, the only logical course would be to flip the portfolio to other players in the smartphone industry for a quick profit.

The way to extract real value from BlackBerry's IP is to use the patents in cross-licensing deals between tech companies, allowing players to use each other's technologies. Patents can also be used in litigation, either on offense to protect turf, or to defend against infringement.

"While the merits of individual patents can be debated, the overall size of the BlackBerry patent portfolio makes it highly attractive," said Alan Fisch, an intellectual property lawyer with Fisch Hoffman Sigler LLP in Washington, D.C.

Intellectual Asset Management, a British trade publication, recently put BlackBerry in an elite group of 14 companies worldwide that hold at least 3,400 U.S. patents, make new applications at a minimum rate, and own the most coveted intellectual property.

What's the rest of BlackBerry worth?
BlackBerry's "hardware, infrastructure, and operating system" could be worth $2 billion. In addition to the hard assets, the company had $2.6 billion in cash on hand at the end of last quarter. But the company blew through $500 million in that three-month period.

I think David Braun, the CEO of IP-focused investment bank Capstone made the best calculation, he set the fair price for BlackBerry at $6 billion.

Who might bid?
A Nortel-style consortium is a likely solution for BlackBerry's patents, even if Fairfax does buy the whole company and sells off the parts. Apple or Google, for example, would have the resources to buy these patents.

A possible bidder for BlackBerry, as a whole, is less clear. One potential buyer is BlackBerry co-founder and former co-CEO Mike Lazaridis, who recently reported an 8% stake. Lazaridis could team up with some private-equity firms to make an offer for the entire company.

A lot of companies may have the money and the market, but who has the vision to make BlackBerry valuable again. BlackBerry is worth something only if a suitor can unlock the value. The strategic buyer route provides an alternative to Fairfax's $9 per share offer, which some speculate has little chance of securing financing. Private-equity firm Cerberus, has also expressed interest.

According to sources, potential corporate buyers have been "especially interested in BlackBerry's secure server network and patent portfolio, although doubts about the assets' value remains an issue." Analysts believe BlackBerry's security-focused messaging system could be worth $3 billion to $4.5 billion, and its patent trove $2 billion to $3 billion. However, a company filing disclosed that the value of its patent portfolio and licensing agreements could have in the next 18 months.

TechCrunch speculates that "An enterprise-focused bidder, such as SAP or Cisco, might make the best fit for BlackBerry's security-focused messaging handset business. Especially since the consumer smartphone market is now primarily centered on Android and iOS."

The latest news is that Chinese technology giant Lenovo (NASDAQOTH: LNVGY  ) has signed a non-disclosure agreement so that it can examine BlackBerry's books, The Wall Street Journal reported last Thursday, citing an unnamed source. Whether Lenovo will take the next step, and make a bid is unclear.

Lenovo placed a huge and ultimately successful bet when it bought IBM's personal computer business eight years ago. Now Lenovo is ready for a new challenge, acquiring BlackBerry would reshuffle the mobile phone landscape and potentially breathe new life into the BlackBerry brand.

Final note
BlackBerry's intellectual property is such a large percentage of the company's value because the actual hardware business isn't worth much. BlackBerry's patents would give any buyer a massive advantage in the competitive and highly litigious world of smartphones.

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  • Report this Comment On October 22, 2013, at 9:34 AM, cbglobal wrote:

    Selling 25 to 30 million smart phones a year is not worth much? Typical arrogant American's who think that just because they like the iPhone, millions of people elsewhere on the planet buying Blackberry phones really has no value.

  • Report this Comment On October 24, 2013, at 4:15 AM, melegross wrote:

    This is really overvaluing the company. I'm reading saner articles that value the patents between $800 million to $1.5 billion. That seems more sensible. The value of patent portfolios has gone down. It's being seen that overvaluing them is a mistake.

    Why would Blackberry's patents be of so much value? It's hard to say. The value of a patent portfolio is to keep competitors at bay. Has Blackberry's portfolio managed to prevent competitors from making successful products that compete well against their own? No? Then the patents have little value.

    It's been said elsewhere that the hardware business isn't worth $2 billion. It's worth nothing.

    BBM 10? Again, how are they planning to monetize this free service? Ads? Not going to be popular if they do. If not, then how? I don't read any realistic analysis of this problem, just some assumption that it will be of value.

    BES 10 server? This is mostly of value when running Blackberry phones. Stop running Blackberry phones, and it has no value. Yes, it now also manages Android and iOS. But it does so poorly. What advantage is there to this? The entire MDM market last year had $500 million in sales. How much can BES 10 take? It's a very small business that will have little chance against the established companies in the field.

    I just don't see Blackberry being worth $6 billion. Google paid $12.5 billion for Motorola which was foundering, and is in major trouble now, even though the stock was worth just $6.5 billion the day Google announced the purchase. But then, Google was snookered by Motorola into thinking the patents were of great value. They've proven to be of little value.

    The same situation could exist for Blackberry. Someone may come along and over pay for the company, or it's parts. But that doesn't mean the price was sensible. Google will, at some point, write off pretty much the entire $12.5 billion, proving the purchase wasn't worth the paper the contract was written on.

    I feel that if Blackberry is bought for an inflated price, the same thing will happen there.

    And as they are seriously deteriorating over time, the longer it takes to sell the company off, or its parts, the less value they will have. Part of the value is in the cash and investments. But that is also disappearing.

    If someone is interested, either they should make a move quickly before the cash disappears, or wait until the company declares bankrupcy.

  • Report this Comment On October 24, 2013, at 4:23 AM, melegross wrote:

    Cbglobal, Blackberry isn't selling 25-30 million phones a year. Last quarter, their phone sales fell to just 3.7 million. If that stays constant over the next three quarters, that would be a total of 15 million phones. But that won't happen, sales will continue to deteriorate. They've already given up on more phone models. They're pulling completely out of the consumer phone business which they earlier stated to be essential for their business.

    Being realistic, where is the company going? Their cash and investments is now deteriorating as they no longer have enough sales and cash flow to run the business. The $2.6 billion left is tiny compared to their competitors, and will be several hundred million less at the end of this quarter. They stated that the latest firings and restructuring will cost another $400 million.

    This is too much of a squeeze. It's pretty obvious the only change Blackberry has to remain in one piece is if someone comes and buys them outright. But the value of the company is shrinking daily, so that would be a difficult proposition.

    People felt the same about Nortel, and look at how that turned out. This won't turn out any better.

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