MT Insider: Fairfax Financial is Blackberry's White Knight, Transaction Value at $4.7 Billion Seems Lofty


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Shares of Blackberry (BBRY, BB) were halted again today after Fairfax Financial (FFH) signed a letter of intent (LOI) to acquire the company for $9 in cash/share, which would imply a value of $4.7 billion.

Specifically, the letter of intent stipulates that Blackberry would be taken private through financing from Bank of America Merrill Lynch and BMO Capital Markets with diligence expected to be completed by November 4, 2013.

Recall on 8/12, Prem Watsa, Chairman and CEO of Fairfax Financial (and also BlackBerry's largest shareholder), stepped down from the Board of Directors owing to a potential conflict of interest.

This sparked speculation of a possible buy out by Watsa given his 10% ownership in the company. As far as investors could ascertain at that point in time, Watsa had reached out to pension plans in Canada, but there had been no bids to date.

According to the release, "the Special Committee is seeking the best available outcome for the Company's constituents...and an opportunity to determine if there are alternatives superior to the present proposal..."

At $9 in cash per share, this valuation seems a bit lofty. From an investor perspective, it is doubtful there will be other alternatives on the table. $4.7 billion likely includes the company's cash ($2.6 billion) and patents ($2.1 billion), but it is unclear how or if a write-down is being baked into receivables and inventory. Additionally, where account liabilities ($3.4 billion in accounts payable and accrued expenses) fits into the overall equation is questionable.

In the mean time, Watsa is Blackberry's own white knight given his long term investment horizon and clout (known as the "Warren Buffet" of Canada). Fairfax Financial serves as both an investment vehicle for Watsa as well as an insurance holding company.

Separately, Apple ( AAPL ) continues to tick up after the company announced better than expected unit sales. The company also guided to the high end of its previous revenue guidance ($34 billion - $37 billion) and gross margins (36-37%) for the fiscal 4th quarter.

BBRY 8.80 USD +0.07 +0.80

BB 9.04 CAD -0.04 -0.44

AAPL 490.99 +23.58 +5.04

FFH 419.67 CAD +3.81 +0.92

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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