After concluding a review of all strategic alternatives to its $4.7 billion buyout offer, beleaguered Canadian handset maker BlackBerry has scrapped its plans to sell the company and raised $1 billion investment from Fairfax Financial Holdings Limited and other institutional investors in convertible debentures, with Fairfax itself purchasing $250 million of the debentures. The transaction is expected to be completed over the next two weeks.
As per the agreement, the investor consortium will subscribe to 6% unsecured subordinated convertible debentures worth $1 billion, convertible into common shares of BlackBerry at $10 per share, which is 28.7% premium to the closing price of BlackBerry shares on November 1, 2013. These debentures have a seven-year term and if all of them are converted, the issued common shares will represent 16% of all common shares in BlackBerry, based on the number of current outstanding common shares.
This investment is expected to provide an immediate cash infusion to BlackBerry to substantially improve its cash position. It’s also worth noting that Investors have an option to purchase additional debentures worth $250 million within 30 days of closing the transaction, thereby increasing its stake to 19.2%.
John S Chen Is New BlackBerry CEO
Following this investment, BlackBerry CEO Thorsten Heins will be stepping down after a six year stint and will be replaced by former Sybase CEO John S. Chen who has been appointed as the Interim CEO, until the board completes the search for a new CEO.
Heins had been appointed as the president and CEO of BlackBerry (then Research In Motion) in January 2012, after its two CEOs Mike Lazaridis and Jim Balsillie had stepped down from their respective positions. He had joined BlackBerry in December 2007 as its Senior Vice President for Hardware Engineering and become the company’s Chief Operating Officer for Product and Sales in August 2011.
On the other hand, Chen was the chairman, president and CEO of Sybase from 1998-2012 and has been attributed (pdf) for Sybase’s turnaround from a lowly $362 million market cap in 1998 to $5.8 billion market cap in 2010, when it was acquired by SAP AG. Prior to this, he has held a series of executive positions at Siemens AG, Pyramid Technology Corp, and Burroughs Corp. He had also joined private equity firm Silver Lake as senior advisor in November 2012.
What They’re Saying
On BlackBerry’s Handset business: In an interview to Reuters, John S Chen has said he has no plans to kill BlackBerry’s handset business. He said – “I know we have enough ingredients to build a long-term sustainable business. I have done this before and seen the same movie before”.
The New York Times’ DealBook: Steven Davidoff speculates BlackBerry ended its sale process because Fairfax Financial Holdings was unable to pull off the requisite financing. The speculation of Cerberus and other interested bidders were just rumors and no real bidder had appeared. “BlackBerry right now can be viewed as a binary play. It will either fail miserably or be a remarkable turnaround”.
Business Insider: Thorsten Heins had a $56 million ‘double trigger bonus’ in case he was able to execute the buyout deal. Failing that, upon termination without a change in ownership, he would get a $22 million payout. However, if he resigned, no severance amounts will be payable to Heins.