As BlackBerry clings on to a future as a mobile enterprise supplier, it is reported to be reaching out to a whole range of technology firms to make alternative offers to its one firm bid, from its largest shareholder Fairfax Financial Holdings.
According to Reuters, BlackBerry has asked for preliminary expressions of interest from potential strategic acquirers, including Google, Cisco, SAP and Intel, and even some of its smartphone rivals, such as LG and Samsung.
This does not mean that any of the companies will submit an offer this week, but each of them has been linked to interest in BlackBerry in the past, and they would provide the strategic direction for the company that Fairfax might not. Without the entry of an industry major, there is the sad prospect of BlackBerry ending up in a low-rent bidding war between investors which focus on ‘distressed’ companies. One such firm, Cerberus Capital Management, was reported last week to be seeking a confidentiality agreement with BlackBerry as preparation for a possible offer.
Cerberus will look at BlackBerry’s books, says The Wall Street Journal, though this will not necessarily result in a firm offer. The WSJ also believes at least one other investment firm, also specializing in turning around ‘distressed’ companies, has been ‘sniffing around’ the stricken handset maker.
Although BlackBerry announced the $9-per-share Fairfax deal last month, this came with the right to seek alternative bids, and there have already been criticisms of the offer on the table ‘ lack of clarity about the financing, and the absence of other named partners, even though Fairfax has said it is leading a group bid. According to Bloomberg, investors are increasingly skeptical that Fairfax’s tentative $4.7bn bid will succeed, driving BlackBerry stock down even further, reducing its market value to $4bn at the end of Friday.
Meanwhile, the firm’s problems have mounted even further since it announced disastrous quarterly results a week ago,with a $965m quarterly loss, plus filings which reveal management splits and the scale of the challenge from Android. It has now been slapped with a class action lawsuit filed by shareholder Marvin Pearlstein, claiming the company misled investors about its future prospects, particularly by overplaying the competitive capabilities of the Z10, the acknowledged make-or-break device for BlackBerry’s smartphone business. The suit, filed in federal court in Manhattan on Friday, alleges that BlackBerry, then RIM, was misleading when it said it was “progressing on its financial and operational commitments’ and that previews of BlackBerry 10 were well received by developers.
BlackBerry has denied such claims, but did acknowledge last week that ‘uncertainty surrounding its ongoing strategic review’ may have impacted demand for its enterprise products during the quarter to August 31 ‘ even though the main factor highlighted during the results announcement was the poor uptake of the Z10 smartphone, and a consequent inventory charge of $934m, and the server platforms are generally seen as the offerings with the greatest survival potential.
CEO Thorsten Heins insisted on the results call that the company was still seeing ‘confidence from our customres through the increasing penetration of BES 10’ (BlackBerry Enterprise Server 10). He boasted of more than 25,000 commercial and test BES 10 servers installed to date, up from 19,000 in July. The firm also reacted defiantly to a warning from research firm Gartner, which told its enterprise customers to explore alternatives to BlackBerry ‘ a position the vendor denounced as ‘purely speculative’.
But in filings revealed on Wednesday, the company took a more pessimistic view, saying that ‘delays in the launch of certain functionality of the BES 10 platform and alternative competitor products in the market have resulted in a slower than anticipated rate of adoption of the BES 10 platform by enterprise customers, many of which look to deploy BlackBerry 10 hardware and software simultaneously to optimise security through the integrated BlackBerry end-to-end solution’.
The filings also revealed that BlackBerry expects to incur $400m in charges throughout fiscal 2014 and to the end of the first quarter of fiscal 2015, related to its massive restructuring plan, which includes axing 40% of its workforce. That figure is up from a previous estimate of $100m through fiscal 2014. The company acknowledged that the pending acquisition, and the cost cutting plan, ‘may adversely impact the company’s business, existing and future relationships with business partners and end customers of its products and services, and its ability to attract and retain key employees’.
Despite all that, BlackBerry did manage to show off a new solution for the business segment, and it does still does have genuine differentiation in the mobile enterprise platform and the growth of BYOD (bring your own device) environments. Awkwardly enough, BlackBerry had to debut its new cloud-based offering at the ITxpo 2013 event hosted by research firm Gartner, which last week warned clients to look for alternative solutions to BlackBerry Enterprise Server because of uncertainties about the vendor’s future ‘ advice which prompted angry response from the Canadian company.
The new offering is a multiplatform cloud-based enterprise mobility management (EMM) system will “enable businesses to easily secure and manage corporate and personal devices’, according to its supplier. It aims to make it easier for corporate IT departments to manage and secure BYOD devices, a key challenge for many companies as employees increasingly rely on their own handsets and tablets at work. BlackBerry is providing mobile device management (MDM), mobile application management (MAM) and security capabilities, and administrators will be able to build a catalog of apps for their staff from the App Store, Google Play and BlackBerryWorld storefronts.
Stephen Bates, head of the firm’s Enterprise Business Unit, bravely ignored the gathering stormclouds and remained upbeat, saying: “BlackBerry is evolving. As the industry has adopted BYOD and mixed mobile environments, we’ve responded with our multiplatform EMM solution. The new cloud-based EMM solution will bring all the benefits of our on-premise offering, which is trusted by more businesses and governments around the world than any other enterprise mobility solution, to customers as a cloud service that lets them easily manage BlackBerry, iOS and Android devices more cost efficiently than ever before.”
BlackBerry’s disastrous quarter:
BlackBerry CEO Thorsten Heins’s gift for understatement was on full display as the firm announced perhaps its last ever quarterly results as a public company ‘ saying he was ‘very disappointed’ with a 45% year-on-year drop in revenue to $1.57bn in the fiscal second quarter (to August 31) and a net loss that more than quadrupled to $965m, from $229m.
During the quarter the company recognized hardware revenue on about 3.7m BlackBerry smartphones, most of them last-generation BB7 models. The company is not recognizing revenue on handsets running the new, ‘make or break’, BB10 operating system, unless they have sold through to end users ‘ a decision that has added to nervousness about BlackBerry, since it suggests a lack of confidence that the units shipped to the channel will actually be purchased by consumers.
About 5.9m BlackBerry smartphones were sold through to end users in the quarter, including some which had shipped before the start of Q2, and which reduced inventory.
“We are very disappointed with our operational and financial results this quarter and have announced a series of major changes to address the competitive hardware environment and our cost structure,” said Heins. Before the results were announced, it had emerged that the company had received a $4.7bn offer from a group led by its largest shareholder, Fairfax Financial Holdings, to take it private. It could still receive higher offers from alternative acquirers but looks almost certain to disappear from the stock markets.
Perhaps the biggest symbol of the company’s precipitous decline was the 56% drop in its sales in the Americas, its heartland region, where it made $610m in revenues in its second quarter. As expected since the company issued a profits warning a week ago, it announced a pre-tax writedown of $934m for unsold handsets and plans to axe 4,500 jobs, or one-third of its workforce.