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November 04, 2013

BlackBerry - No Sale as Former Sybase CEO John Chen Takes Control

If you can remember back to the end of June, I wrote an article saying that BlackBerry would not be holding its normal webcast for quarterly results. That is also when BlackBerry announced it had entered into a letter of intent for a deal with a group of investors led by Fairfax Financial.

So much has happened with BlackBerry since that time. Over a half-dozen names have popped up as potential buyers or people of interest. This morning, we have some concrete information about this situation. It does indeed look as if BlackBerry followed up on the letter of intent.

BlackBerry will receive an investment of $1 billion from Fairfax Financial and Other Institutional Investors. In keeping with the information, this investors group will be referred to collectively as the “Purchasers.” As such, BlackBerry will receive an investment of a $1 billion private placement of convertible debentures.

It should be clear that the collective group of investors is the Purchasers. Fairfax Financial Holdings Limited remains as a piece of the pie. Speaking of the pie, Fairfax has agreed to acquire a $250 million principle amount of the debentures.

A debenture is a document that either creates a debt or acknowledges it. It is a debt without collateral. In corporate finance, the term is used for a medium to long term debt instrument used by large companies to borrow money.

In some countries the term is used interchangeably with bond, loan stock or note. This means that a debenture is like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest. Although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital.

Image courtesy Shutterstock
While the financial news may be important to BlackBerry, there are two points that are most interesting. One piece of news that comes out of this morning’s information is that John S. Chen will be appointed executive chair of BlackBerry's Board of Directors. In this capacity, he will be responsible for the strategic direction, strategic relationships and organizational goals of BlackBerry.

The second point that is quite important is the fact that both current CEO Thorsten Heins and Director David Kerr intend to resign from the Board at closing. Prem Watsa, who is the chairman and CEO of Fairfax, will be appointed (take a deep breath) lead director and chair of the compensation, nomination and governance committee.

At day’s end, Chen will begin to serve as interim CEO. This will hold true as a search gets underway to find a new, permanent CEO. Chen previously served as the chairman and CEO of Sybase Inc.

Chen had the following to say: "I am pleased to join a company with as much potential as BlackBerry. BlackBerry is an iconic brand with enormous potential -- but it's going to take time, discipline and tough decisions to reclaim our success. I look forward to leading BlackBerry in its turnaround and business model transformation for the benefit of all of its constituencies, including its customers, shareholders and employees."

In previous comments Chen said that Fairfax’s interest in BlackBerry was to keep the Canadian icon that it is. While there was talk that Asian companies showed interest in acquiring BlackBerry, Chen wants to make sure the company remains at home and reacquires its former glory.

Barbara Stymiest, who is the chair of BlackBerry's board, made the following comments: "Today's announcement represents a significant vote of confidence in BlackBerry and its future by this group of preeminent, long-term investors. The BlackBerry Board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders. This financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing our substantial cash position. Some of the most important customers in the world rely on BlackBerry and we are implementing the changes necessary to strengthen the company and ensure we remain a strong and innovative partner for their needs."

In terms of the financial aspect, the purchasers will subscribe for a $1 billion aggregate principal amount of 6 percent unsecured subordinated convertible debentures. This will be convertible into common shares of BlackBerry at a price of $10.00 per common share, which is a 28.7 percent premium to the closing price of BlackBerry common shares on November 1, 2013.

Stymiest went on to say, "I am also pleased that John Chen, a distinguished and proven leader in the technology industry, has agreed to serve as BlackBerry's Executive Chairman. I look forward to continuing to serve BlackBerry as a member of its Board of Directors and chair of the Board's Audit and Risk Management Committee. On behalf of the Board, I would also like to thank Thorsten for his service to BlackBerry over the past six years. Under his leadership, BlackBerry established a more efficient cost structure, developed new products, saw the adoption of BES 10 and delivered the BlackBerry 10 platform. These are all significant accomplishments. We are grateful for his contributions and wish him well in his future endeavors."

I don’t want to leave out what Prem Watsa had to say. He added, "Fairfax is a long-time supporter, investor and partner to BlackBerry and with this investment, reinforces its deep commitment to the future success of this company. I look forward to rejoining the BlackBerry Board and to working with the other directors and management team, under John Chen's leadership, to shape the next stage of BlackBerry's strategy and growth."

A good question is how do investors feel about these changes? On Friday, BlackBerry closed at $7.77. So far as I’m ending this article the numbers stand at $6.86. That signifies a $0.91 drop since the announcement. That drop doesn’t seem that significant just yet. Time will tell.

Edited by Rory J. Thompson

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