BlackBerry buyout raises doubts about the company’s future

by CXOtoday News Desk    Sep 24, 2013


BlackBerry is all set to be acquired in a $4.7 billion deal by a consortium led by Fairfax Financial Holdings, a Canadian insurance and investment company. Fairfax, which already holds a share of about 10% in the company, is said to be BlackBerry’s largest shareholder. The acquisition, however, may not put an end to the company’s woes, fear analysts.

Once a leading player in the smartphone market, the company had been reeling under tremendous pressure over the last several months. With rivals like Apple and Samsung taking over the smartphone market, BlackBerry was facing a continuous decline in market share and value. The company had recently also announced plans to lay off about 40% of its workforce and was expected to report a loss of about $1 billion. According to IDC, BlackBerry’s global market share had fallen to an all-time low of 3.7 percent in the last quarter.

Several answered questions

Analysts have reacted to this deal with cautious optimism. “This is probably the best possible outcome of several unattractive options for BlackBerry,” said analyst Jack Gold of J. Gold Associates in a Reuters’ report.  “Being private would mean Wall Street is not continuously breathing down their neck,”

Given the company’s present condition, BlackBerry probably did not have much of a choice at this stage. But there are several answered questions and doubts about the company’s future and long-term sustainability.

“Any deal is far from done. Fairfax did not identify the other investors in its consortium, which is seeking financing. And while the offer could flush out potential rival suitors, it is unclear who might be tempted to come forward, given the company’s uncertain prospects,” reports the New York Times. “Not only are there questions about the offer, several analysts say it is not clear how the Fairfax group could stem BlackBerry’s rapid decline or stabilize the company.”

Possibility of a turnaround?

Even in the past, Fairfax’s Prem Watsa has been known to buy such distressed companies and steer turnarounds. “The sale will open an exciting new private chapter for BlackBerry, its customers, carriers and employees. We can deliver immediate value to shareholders while we continue the execution of a long-term strategy in a private company,” he was quoted as saying. However, some of the recent buyouts by Watsa have resulted in failures, again raising doubts about the BlackBerry decision.

Market analysts also point out that privatization may not solve some of the fundamental issues that had gripped the company. BlackBerry’s inability to keep up with pace of the changing market conditions, lost market share and absence of a long term strategy to take on biggies like Apple and Samsung are some of the key issues that still need to be addressed. Jan Dawson, chief telecoms analyst at Ovum says in a Forbes report, “Its announcement last week that no longer intends to pursue the consumer market is essentially the death knell for this business. It’s likely that BlackBerry will be out of the devices business entirely by the middle of next year.”

“Unless Fairfax plans to radically change or accelerate BlackBerry’s strategy, it’s unlikely to be able to turn the company around,” Dawson adds.

Does this mean that this could be the beginning of the end for Blackberry?