Fairfax Financial Holdings Ltd. is seeking over $1-billion (US) of equity investments from institutional investors to back its bid for BlackBerry – but now might not be the time, cautions one Toronto broker.
“I would say no. The stock is trading at near highs and that's going back five years,” says Michael Hartsman, a manager of trade credit with Firstbrook, Cassie & Anderson Ltd. “Don't forget RIM is not profitable and they had a big loss in the last quarter. They may want the company initially to take advantage of losses carried forward to lower their tax rate.”
According to those familiar with the discussions, Fairfax’s chief Prem Watsa has personally contacted several leading Canadian and U.S. pension and private equity funds to win support for a highly conditional overture to acquire the troubled smartphone maker for $4.7 billion.
Sources say only one pension fund, the Ontario Teachers’ Pension Plan, is seriously considering joining the potential takeover consortium – although these rumours remain unconfirmed.
The potential acquisition is being pitched as a leveraged buyout that would be financed with more than $3-billion of bank loans, $1-billion of equity from institutions and Fairfax’s nearly 10-per-cent stake in BlackBerry. That stake is currently valued at about $470-million. (continued.)
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If Fairfax falls short of the equity it’s seeking to help finance the potential takeover, those familiar with the deal said it intends to arrange a short-term bridge loan that could be repaid with BlackBerry’s cash holdings of about $2.6-billion.
Although not sanguine about investing in the Fairfax deal, Hartsman isn’t prepared to write off BlackBerry forever – as down the road a reorganization of RIM will likely make that company worth a second look for investors.
“There is a lot of support at the $380 dollar level and it’s very close to the 52 week high,” Hartsman told InsuranceBusiness.ca. “Be patient. The upside is minimal and the company only pays a 2.44 per cent dividend. RIM is also getting out of the consumer market – business use only.”
Fairfax has been quietly courting BlackBerry for months, but according to Globe and Mail sources, the company’s directors had little interest in the highly leveraged plan until the announcement of a nearly $1-billion writedown erased nearly 20 per cent of the company’s stock market value in the final hour of trading late last week. (continued.)
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Fears of further stock declines prompted the board to enter discussions with Fairfax, which after months of talks with a variety of potential buyers, was the only buyer still expressing interest in the company. Sources privy to the weekend negotiations said talks almost broke off when Fairfax refused to back away from its demand for the lucrative $150-million break fee it eventually secured.
What is unusual about BlackBerry’s commitment to pay a break fee is that Fairfax has submitted an offer that is so tentative, it represents little more than an expression of interest.
Under the terms of Fairfax’s proposal, it can walk away from its acquisition plan if it becomes dissatisfied after assessing the company’s confidential financial and operating data.
