BlackBerry has entered into an agreement pursuant to which Fairfax and other institutional investors will invest in BlackBerry through a U.S. $1 billion private placement of convertible debentures. Fairfax has agreed to acquire U.S. $250 million principal amount of the Debentures. The transaction is expected to be completed within the next two weeks.
Under the terms of the transaction, the Purchasers will subscribe for U.S. $1 billion aggregate principal amount of 6% unsecured subordinated convertible debentures convertible into common shares of BlackBerry at a price of U.S. $10.00 per common share, a 28.7% premium to the closing price of BlackBerry common shares on November 1, 2013. The Debentures have a term of seven years. Based on the number of common shares currently outstanding, if all of the U.S. $1 billion of Debentures were converted, the common shares issued upon conversion would represent approximately 16% of the common shares outstanding after giving effect to the conversion.
Upon the closing of the transaction, John S. Chen will be appointed Executive Chair of BlackBerry’s Board of Directors and, in that role, will be responsible for the strategic direction, strategic relationships and organizational goals of BlackBerry. Prem Watsa, Chairman and CEO of Fairfax, will be appointed Lead Director and Chair of the Compensation, Nomination and Governance Committee and Thorsten Heins and David Kerr intend to resign from the Board at closing.
In addition, Mr. Heins will step down as Chief Executive Officer at closing and Mr. Chen will serve as Interim Chief Executive Officer pending completion of a search for a new Chief Executive Officer.
Today’s announcement marks the conclusion of the review of strategic alternatives previously announced on August 12, 2013.
“Today’s announcement represents a significant vote of confidence in BlackBerry and its future by this group of preeminent, long-term investors,” said Barbara Stymiest, Chair of BlackBerry’s Board. “The BlackBerry Board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders. This financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing our substantial cash position. Some of the most important customers in the world rely on BlackBerry and we are implementing the changes necessary to strengthen the company and ensure we remain a strong and innovative partner for their needs.”
Ms. Stymiest added, “I am also pleased that John Chen, a distinguished and proven leader in the technology industry, has agreed to serve as BlackBerry’s Executive Chairman. I look forward to continuing to serve BlackBerry as a member of its Board of Directors and chair of the Board’s Audit and Risk Management Committee. On behalf of the Board, I would also like to thank Thorsten for his service to BlackBerry over the past six years. Under his leadership, BlackBerry established a more efficient cost structure, developed new products, saw the adoption of BES 10 and delivered the BlackBerry 10 platform. These are all significant accomplishments. We are grateful for his contributions and wish him well in his future endeavors.”
“Fairfax is a long-time supporter, investor and partner to BlackBerry and, with this investment, reinforces its deep commitment to the future success of this company,” said Prem Watsa, Chairman and CEO of Fairfax. “I look forward to rejoining the BlackBerry Board and to working with the other directors and management team, under John Chen’s leadership, to shape the next stage of BlackBerry’s strategy and growth.”
“I am pleased to join a company with as much potential as BlackBerry,” said Mr. Chen. “BlackBerry is an iconic brand with enormous potential – but it’s going to take time, discipline and tough decisions to reclaim our success. I look forward to leading BlackBerry in its turnaround and business model transformation for the benefit of all of its constituencies, including its customers, shareholders and employees.”
This long awaited acquisition is just about the start of a new era for the communications equipment manufacturer, which did not have sufficient time to build up its efforts for a turnaround of the brand. Heins’ efforts have been commendable, albeit the insufficient lead time and financial muscle to see the brand through to its next level.
The next step will be for the new leadership to get on with ensuring that it is on the central idea and sticks to the plot of playing the smartphone game right. Given the market share loss, it is difficult to climb and regain its previous glory, but it is also noteworthy that loyalty to smartphone brands are typically fleeting, as proven by studies done on this industry. In the longer term, will the new platform stand to its test and proof itself as the key competitive advantage over rivals? Heins did a great job in pulling the entire company in this direction, and only time will tell. The only sad thing behind this is that he had not been given sufficient time to prove it’s worth, and time is not a luxury in a volatile, short-termism environment.