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Blackberry Craters After Report Company Abandons Sale, To Replace CEO, To Issue 19.2% Dilutive Convert Instead

Tyler Durden's picture




 

Just over a month ago, when we shared our cynical view on the "hopium" inspired LBO of Blackberry, we commented as follows: "In other words an LBO, one which however has not only one but many outs: "There can be no assurance that due diligence will be satisfactory, that financing will be obtained, that a definitive agreement will be entered into or that the transaction will be consummated." Which means that once the buyers figure out the potential disaster on the books, expect the final price (if any) to be revised lower as one after another MAC clause is triggered." Not even we were right: as it turns out moments ago, the Globe & Mail reported that having looked at the BBRY, not only will the price be revised lower, but the "purchase" price will be eliminated altogether as any deal is now dead, the company will do a convert offering instead and deadpan CEO Torsten Heins is history.

Instead of selling itself, Blackberry is doing a Hail Mary convert offering, which net of all greenshoes, will amount to 19.2% equity dilution: " If an additional U.S. $250 million of Debentures is issued and all U.S. $1.25 billion of Debentures were converted, the common shares issued upon conversion would represent approximately 19.2% of the common shares after giving effect to the conversion, based on the number of common shares currently outstanding."

And here is the reaction...


Via The Globe And Mail,

BlackBerry Ltd. is abandoning a plan to find a buyer and will instead raise $1-billion of new funds and replace its chief executive and some directors, sources said.

 

...

 

The new plan will involve raising roughly $1-billion by selling convertible notes to a group of investors, according to people familiar with the transaction. Chief executive officer Thorsten Heins will depart the company, and the company will announce changes to its board, the people said.

And the official release:

BlackBerry (BBRY)(BB.TO), a world leader in the mobile communications market, today announced that it has entered into an agreement pursuant to which Fairfax Financial Holdings Limited ("Fairfax") and other institutional investors (collectively, the "Purchasers") will invest in BlackBerry through a U.S. $1 billion private placement of convertible debentures. Fairfax has agreed to acquire U.S. $250 million principal amount of the Debentures. The transaction is expected to be completed within the next two weeks.

 

Under the terms of the transaction, the Purchasers will subscribe for U.S. $1 billion aggregate principal amount of 6% unsecured subordinated convertible debentures (the "Debentures") convertible into common shares of BlackBerry at a price of U.S. $10.00 per common share (the "Transaction"), a 28.7% premium to the closing price of BlackBerry common shares on November 1, 2013. The Debentures have a term of seven years. Based on the number of common shares currently outstanding, if all of the U.S. $1 billion of Debentures were converted, the common shares issued upon conversion would represent approximately 16% of the common shares outstanding after giving effect to the conversion.

 

Upon the closing of the transaction, John S. Chen will be appointed Executive Chair of BlackBerry's Board of Directors and, in that role, will be responsible for the strategic direction, strategic relationships and organizational goals of BlackBerry. Prem Watsa, Chairman and CEO of Fairfax, will be appointed Lead Director and Chair of the Compensation, Nomination and Governance Committee and Thorsten Heins and David Kerr intend to resign from the Board at closing.

 

In addition, Mr. Heins will step down as Chief Executive Officer at closing and Mr. Chen will serve as Interim Chief Executive Officer pending completion of a search for a new Chief Executive Officer.

 

Today's announcement marks the conclusion of the review of strategic alternatives previously announced on August 12, 2013.

 

"Today's announcement represents a significant vote of confidence in BlackBerry and its future by this group of preeminent, long-term investors," said Barbara Stymiest, Chair of BlackBerry's Board. "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."

 

Ms. Stymiest added, "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."

 

"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," said Prem Watsa, Chairman and CEO of Fairfax. "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."

 

"I am pleased to join a company with as much potential as BlackBerry," said Mr. Chen. "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."

 

Pursuant to the Transaction agreement, the investors have an option to purchase up to an additional U.S. $250 million principal amount of Debentures within 30 days following closing. If an additional U.S. $250 million of Debentures is issued and all U.S. $1.25 billion of Debentures were converted, the common shares issued upon conversion would represent approximately 19.2% of the common shares after giving effect to the conversion, based on the number of common shares currently outstanding.

 

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Mon, 11/04/2013 - 09:26 | 4118964 GMadScientist
GMadScientist's picture

<- Shit

<- Wind Watch

Mon, 11/04/2013 - 09:28 | 4118970 Sylvia Plath
Sylvia Plath's picture

By the looks ove the volume, someone knew something before hand... or they got their news paper early... 

Mon, 11/04/2013 - 09:33 | 4118983 negative rates
negative rates's picture

Pull the trigger on that sucker.

Mon, 11/04/2013 - 09:50 | 4119008 flacon
flacon's picture

That stock has gone all fruity. 

Mon, 11/04/2013 - 10:02 | 4119039 NoDebt
NoDebt's picture

This is what happens when you put Thurston Howell III in charge of your tech company.  Dude was never right after being stranded on that island so long.

Mon, 11/04/2013 - 10:57 | 4119241 El Oregonian
El Oregonian's picture

"

Mon, 11/04/2013 - 09:35 | 4118984 GetZeeGold
GetZeeGold's picture

 

 

Should be a lot of cool Blackberry crap to pick up on Ebay soon.

 

Not really interested in a phone.....maybe a hockey puck or a coaster.

Mon, 11/04/2013 - 09:39 | 4118994 Platinum
Platinum's picture

I regret not buying that giant Enron cube that was on sale a decade ago.

 

I wonder what will be the symbol of this decade? "Fiat money of the world toilet paper" is my bet. Extra large rolls.

Mon, 11/04/2013 - 09:57 | 4119027 Bobbyrib
Bobbyrib's picture

That could never happen. /sarcasm.

Mon, 11/04/2013 - 09:27 | 4118967 Rehab Willie
Rehab Willie's picture

TIM-BBRRRRRRRRRRY

Mon, 11/04/2013 - 09:49 | 4119006 bubblemania
bubblemania's picture

Bullish

Mon, 11/04/2013 - 09:31 | 4118981 Quinvarius
Quinvarius's picture

AAPL's future.  A handset maker is a handset maker.  Saw it all in 2000.  It is all about the latest fad in gadgets.

Mon, 11/04/2013 - 09:38 | 4118985 Dr. Engali
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Well at least we know that Zero won't be able to spy on Merkel with Blackberry any longer.

Mon, 11/04/2013 - 09:40 | 4118995 RSloane
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The Germans met with Snowden this week to discuss the possibilty of Snowden testifying live in front of a German court re NSA spying. Snowden's attorney is going ahead with trying to meet the demands of Snowden's living arrangement in Russia and Snowden leaving the country to testify. Of course, their biggest concern is the US who would have no problems killing a Russian guest on German soil. The morons in the US would probably cheer.

Mon, 11/04/2013 - 09:51 | 4119015 Dr. Engali
Dr. Engali's picture

"The morons in the US would probably cheer."

 

Sadly you are right Sloan. I know too many people that view Snowden as a traitor. I can't comprehend their thinking. As far as the German court, I hope that it isn't some ruse to placate the German drone citizenry.

Mon, 11/04/2013 - 20:38 | 4120787 StychoKiller
StychoKiller's picture

Yeah, none of this finance crap will do anything to fix the perception that Blackberry no longer has the one thing that made it stand out from the crowd:  SECURE business communications!

Mon, 11/04/2013 - 09:35 | 4118987 Fix It Again Timmy
Fix It Again Timmy's picture

Not berry good at all...

Mon, 11/04/2013 - 09:36 | 4118990 Platinum
Platinum's picture

All 9 Blackberry users must be really upset.

Mon, 11/04/2013 - 09:41 | 4118996 GetZeeGold
GetZeeGold's picture

 

 

I think Obama still uses one....more proof he's totally in touch.

Mon, 11/04/2013 - 09:51 | 4119012 superflex
superflex's picture

Cue the BB Messenger Service defenders in 3...2....1

Mon, 11/04/2013 - 10:32 | 4119164 Dr. Kenneth Noi...
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Man, Denninger's gonna have an aneurysm..

Mon, 11/04/2013 - 14:24 | 4119767 ElvisDog
ElvisDog's picture

Yeah, I've never understood his obsession with Blackberry. It's just a fucking phone.

Mon, 11/04/2013 - 09:49 | 4119000 LawsofPhysics
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Next up, a reverse split, dump this bitch, now...

Mon, 11/04/2013 - 09:47 | 4119004 Trimmed Hedge
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I think what Taylor is trying to tell us is:

BTFD!

Mon, 11/04/2013 - 09:49 | 4119010 GetZeeGold
GetZeeGold's picture

Absolutely.

 

See how easy this crap is?

Mon, 11/04/2013 - 09:50 | 4119014 TheInformedShepard
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HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAH

Mon, 11/04/2013 - 09:54 | 4119020 RafterManFMJ
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Owned a Blackberry Storm years ago; the worst POS phone I've ever had. Usually had to do a battery removal hard boot to make a phone call.

Mon, 11/04/2013 - 09:54 | 4119022 yogibear
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One can think of Palm. Crashberry shot it's last load with the Z10.

Mon, 11/04/2013 - 10:11 | 4119073 firstdivision
firstdivision's picture

If Cramer comes out and says BBRY is a "Sale, sale, sale", I'm buying on margin.

Mon, 11/04/2013 - 10:17 | 4119091 Mitch Comestein
Mitch Comestein's picture

I screwed the pooch on that bitch.  I wonder what they need the money for....acquisition, more buildout?  They had 1.1 bil on the balance sheet in st paper.

 

I actually tried to sell my position a few days ago for a profit.  Obvisously the word was out as the stock started to fall two days ago.  I will clutch my silver/gold and it will make me feel better.

Mon, 11/04/2013 - 10:20 | 4119109 MoneyThimbles
MoneyThimbles's picture

"...a world leader in the mobile communications market..."

 

Looks like they are still in denial.



Mon, 11/04/2013 - 10:23 | 4119119 Its Only Rock N Roll
Its Only Rock N Roll's picture

And the zombie company continues to live (temporarily)  ...along with ALU this morning this is how cheap credit allows companies that should be dead keep on living. 

Capitalism is dead.

Mon, 11/04/2013 - 10:33 | 4119166 B.J. Worthy
B.J. Worthy's picture

We Canadians never learn. This is the second coming of Nortel Networks.

Mon, 11/04/2013 - 14:02 | 4119711 Emergency Ward
Emergency Ward's picture

Nortel made fine equipment but was plagued by management with a mid-century mindset.

Mon, 11/04/2013 - 10:38 | 4119193 TimTom
TimTom's picture

Worst CEO ever. I remember when he first got in there and said they didn't need to do anything new. Knew he was a jhole right away.

Mon, 11/04/2013 - 12:44 | 4119532 Buckaroo Banzai
Buckaroo Banzai's picture

Almost like he was hired to destroy the company, or something.

But, why would anyone want to put the only cellphone maker with a highly secure, encrypted communications platform out of business?

Mon, 11/04/2013 - 10:45 | 4119209 NoWayJose
NoWayJose's picture

Convertibles are the kiss of death to any troubled company.  Goodbye Blackberry....  If you could raise money by selling common, you would do so.  The shorts use the convertibles to cover their backsides, then fearlessly short the stock into oblivion.

Mon, 11/04/2013 - 12:46 | 4119538 Buckaroo Banzai
Buckaroo Banzai's picture

"The shorts use the convertibles to cover their backsides, then fearlessly short the stock into oblivion."

Yep. It's "Heads I win, tails you lose" time for the shorts.

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