BlackBerry shares fell as much as 18% after Fairfax abandoned the takeover plan, opting instead for a bond deal and management shakeup. Fairfax, BlackBerry’s largest investor, will invest $250m in the convertible debentures, according to a statement. CEO Thorsten Heins will step down, while former Sybase chief John Chen becomes executive chairman.
The transaction, slated to be completed later this month, follows a six-week attempt by Fairfax to attract financing for its buyout bid, which would have taken the smartphone maker private. The $1bn infusion will help stabilise the unprofitable company as it burns cash, though BlackBerry will still pursue other deals and is now more open to the idea of a breakup, people familiar with the matter said.
“The important thing is, what is the strategy?” said James Moorman, an analyst with S&P Capital IQ. “They have a chance, and have a little more runway with the additional cash, but they need to start making some smart decisions.”
BlackBerry shares fell as low as $6.40 in New York, sending the company’s market value below $3.5bn. The stock was already down 35% this year before yesterday’s tumble, as the company’s smartphones lost ground to Apple and Samsung Electronics.
Chen will become interim CEO while Waterloo, Ontario-based BlackBerry seeks a permanent replacement. The 58-year-old previously executed a comeback plan at Sybase, which was acquired by SAP for $5.8bn in 2010.
The move to raise funds from convertible debentures, which can be turned into stock, underscores BlackBerry’s deteriorating cash situation. The company’s cash and short-term investments fell by almost $500m last quarter to $2.3bn.
At that rate, the money will be gone by the end of next year. And further restructuring will only make the funds go faster, said Alexander Peterc, an analyst with Exane BNP Paribas.
BlackBerry’s latest phones got a tepid response from consumers, and even once-loyal customers are putting off upgrading to the new software.
Jabil Circuit, one of BlackBerry’s top electronics suppliers, said in September it will probably disengage from its relationship with the company. That’s raised speculation that BlackBerry will stop making phones.