Documents show Samsung bid $7.5bn for Blackberry and QNX
January 28, 2015
Samsung Electronics recently offered to buy Blackberry for as much as US$7.5bn, which would give it control of the QNX operating system and its valuable patents as it battles Apple in the corporate market, according to a person familiar with the matter and documents seen by Reuters.
South Korea's Samsung proposed an initial price range of $13.35 to $15.49 per share, representing a premium of 38 to 60 per cent over Blackberry's current trading price, the source said last week.
Representatives from the two companies, which are working with advisers, met earlier this month to discuss a potential transaction, the source said, asking not to be identified because the conversations were private.
The Waterloo, Ontario-based company said in a statement that it "has not engaged in discussions with Samsung with respect to any possible offer to purchase Blackberry”. Shares of Blackberry, which soared nearly 30 per cent following the Reuters report, fell back about 15 per cent in after-hours electronic trading following the statement.
Separately last week, Canadian newspaper Globe and Mail reported Blackberry has shunned a handful of takeover overtures in recent months as its board and largest investor think its restructuring strategy will deliver greater shareholder value than current acquisition offers.
The board believes offering prices, some in excess of $7bn, fall well below Blackberry's potential asset value in the next few years, according to the Globe and Mail report.
Blackberry, a one-time investor darling that pioneered smartphones, has regained some of its lost swagger under chief executive John Chen, who is leading a bid to regain market share it lost to Apple, Google and Samsung.
"Blackberry is in such transition today, so any investment has been a bet on the future, so at this point Samsung is cutting in before that full future becomes a reality," said Morningstar analyst Brian Colello.
Samsung’s strength as the number one global smart phone maker has been built on making devices for the consumer market, which has become crowded in recent years. With a takeover of Blackberry, Samsung could make greater inroads into the corporate market, where it has trailed rivals.
“How many Samsung phones do you see in offices? This would be Samsung’s chance to get into the enterprise,” said BGC Partners analyst Colin Gillis.
Any tie-up with Samsung would require the blessing of Prem Watsa, whose Fairfax Financial Holdings is a major Blackberry shareholder. Fairfax helped bankroll a debt recapitalisation that led to Chen's arrival in November 2013 as CEO. Paul Rivett, president of Watsa’s Fairfax Financial Holdings, declined to comment.
The bid would also face regulatory scrutiny in both Ottawa and Washington. Under Canadian law, any foreign takeover of Blackberry would require government approval under the Industry Canada Act. Blackberry's secure networks manage the email traffic of thousands of large corporate customers, along with government and military agencies across the globe. Samsung and its advisers also anticipate a complex approval process at the Committee on Foreign Investment in the United States (CFIUS), which reviews deals for national security implication, the documents reviewed by Reuters show.
Samsung thinks that acquiring less than 100 per cent of Blackberry, perhaps keeping part of it as a publicly traded entity with an independent board, could help secure easier CFIUS approval. But it doubts whether it can accomplish its strategic objectives with less than 100 per cent ownership, the documents show.
In 2013, the Canadian government had strongly hinted to Blackberry that any sale to China’s Lenovo Group would be rejected due to security concerns, sources told Reuters at the time. Harper's office wouldn't comment on the report on Wednesday but sources familiar with the Canadian government's thinking said a Samsung buyout was unlikely to raise such concerns.
Ross Healy, a portfolio manager at MacNicol & Associates, which owns a small stake in Blackberry, said Samsung's reported offer undervalues the company.
“To get a hold of the Blackberry network and all its secure features, that would be a real coup for Samsung, looking to differentiate themselves from Apple and from others," he said.
Blackberry's patent portfolio is composed of roughly 44,000 patents, worth more than $1.43bn in net book value as of August last year, although many analysts think they could be worth much more.
Edward Snyder, managing director of Charter Equity Research, said it made sense for Samsung to target Blackberry's patents in its outgoing battle with Apple and others, and that it likely would need to bid for the whole company because Blackberry management did not want to sell only specific assets.
"Samsung will have to buy the whole thing and then and shutter what they don't need,” he said.
Blackberry launched its long-awaited Classic model last week, hoping to help win back market share and woo customers still using older devices with a keyboard. The phone resembles its once popular Bold and Curve handsets.
In the third quarter, revenue at Blackberry, which is increasingly focusing on providing services such as secure corporate networks, fell to $793m from $1.19bn a year earlier, falling short of analysts' expectations of $931.5m.
Blackberry announced a high-profile security partnership with Samsung in November. The partnership will wed Blackberry's security platform with the South Korean company's own security software for its Galaxy devices.