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What’s BlackBerry worth? Well, Obama has one. So do millions of others

These are stories Report on Business is following Tuesday, Aug. 13, 2013.

Follow Michael Babad and The Globe's Business Briefing on Twitter.

Valuing BlackBerry
Analysts believe a sale of BlackBerry Ltd. could fetch up to between $14 (U.S.) and $20 a share, particularly in a "competitive" bidding process.

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The valuations vary, and analysts are divided over whether suitors for the smartphone maker will include industry players or not. Some are betting on a "going-private" deal instead.

Their calculations came as BlackBerry shares continued to gain today, rising 1.4 per cent on Nasdaq to close at $10.93.

To recap, BlackBerry announced yesterday it has struck a special committee to pursue options, which could involve anything from a joint venture to a partnership to the sale of the company.

Prem Watsa of Fairfax Financial Holdings Ltd., BlackBerry's biggest shareholder, quit the board "due to potential conflicts that may arise during the process."

Indeed, Fairfax is studying ways to take the company private.

BlackBerry has 72 million subscribers, some $3-billion in cash and an estimated $3-billion in patents and licences. In the first quarter, sales of the new BB 10 smartphones, at 2.7 million, failed to meet the projections of analysts.

Analyst Gus Papageorgiou of Scotia Capital believes BlackBerry could fetch more than $14 a share.

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And unlike some of his peers, he's not ruling out some type of deal with an industry player such as IBM, Ericsson, Cisco, Oracle, Samsung, and perhaps even Apple.

"By partnering with one of these larger players we believe BlackBerry's platform gains credibility," Mr. Papageorgiou said in a research note.

"Currently, we believe the company's technology is very sound; however, its tarnished brand and lack of credibility are holding back the adoption of its newly established services. A strong partner, we believe, could act as a catalyst to these services."

Here's how he breaks it down: BlackBerry's net cash is worth $5.90 a share, and its patents an estimated $4.26. While he sees no bidder or partner paying anything for the actual handset operation, he values the services revenue and QNX system at $4 a share.

"Together with the patents and cash we believe a bid of roughly $14.20 is achievable," Mr. Papageorgiou said.

Todd Coupland of CIBC World Markets pegs the value of the company at at least $20 a share: Cash at $5.86, patents and those pending at $4, real estate at $1.31, and five years of cash flow from its services operation at $10. But to get to $20 you'd need some "competitive tension in the process," Mr. Coupland said in an interview.

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"Likely candidates would be another mobile company looking to either grow in enterprise and government, such as Apple or Samsung, one looking to increase/enter the smartphone market (Amazon, Dell, HP) or a company looking at BBM as a social media tool, such as Facebook," he said in his research note.

"Another real option would be an attempt to take BlackBerry private," he added, citing Fairfax as just one possibility.

Mr. Coupland noted that certain BlackBerry subscribers "like and value" push e-mail, the BBM messaging system, and the device's keyboard.

"President Obama still carries his, as do thousands of U.S. government employees," Mr. Coupland said.

"CIBC … is another example where all staffers, with the exception of a small pilot project, carry a BlackBerry," he added in his report.

"And this story can be repeated over many organizations globally. BlackBerry's consumer base, while limited, also provides value with GGM in many emerging markets, valued for its speed and reliability at a very good price. Key countries include Indonesia, Latin America (Mexico, Venezuela), South Africa, and Nigeria, to name a few. When taken together, these disparate customers all pay monthly fees, and many will continue for a while."

It's against that backdrop that Mr. Coupland made his calculation of at least $20, adding that the timeframe for a sale will be probably be about two months.

(For the record, the U.S. president's love of his BlackBerry is legendary, though the White House didn't immediately respond to my question as to whether he still uses it. The Federal Reserve wouldn't tell me what chairman Ben Bernanke uses, and I'm told that Prime Minister Stephen Harper doesn't use a smartphone.)

Some analysts see no interest by industry players, counting instead on a Fairfax or a Silver Lake Partners in some for another.

Several names have been bounced around in terms of an industry player that might be interested in taking a run, from Google Inc., Apple Inc. and Microsoft Corp., to Huawei and Inc.

"We believe that there are few potential suitors given the challenge of turning around the company as fundamentals deteriorate," said Credit Suisse analyst Kulbinder Garcha.

"We believe that any potential suitor would face the costs of needing to execute a meaningful restructuring," they added in a research note after the decision was announced.

"Amazon, Facebook, Microsoft, Huawei or [private equity] buyers stand out as the most likely acquirers though each have cause for concern."

Analyst Stuart Jeffrey of Nomura Securities in New York sees few potential buyers for BlackBerry as the company now stands, having fallen from grace amid fierce competition from Apple Inc., and its iPhone and iOS operating system, and Google's Android system.

"In our view, the best possible long-term outcome for BlackBerry is to cease hardware production for the consumer market and to adapt all its applications to work on iOS and Android, and so become an almost pure service/application provider of corporate cloud applications," he said.

"We believe that this would be a difficult and painful transition and one that might be best suited to a company that is private rather than publicly listed."

That could mean players such as Fairfax or Silver Lake Partners in some form or another.

Apple up on Icahn stake
Apple Inc. shares shot higher this afternoon after Carl Icahn's disclosure of a large stake in the tech giant and his call for a fatter stock buyback.

The activist shareholder didn't say much but what he did say – via Twitter, of all things – helped push Apple shares up by almost 4.8 per cent to $489.57 (U.S.).

His first tweet: "We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come."

What followed: "Had a nice conversation with Tim Cook today. Discussed my opinion that a larger buyback should be done now. We plan to speak again shortly."

Mr. Icahn, who has some 30,000 followers on Twitter, didn't say how much of a stake he now holds, or give details of what he discussed with Mr. Cook, Apple's chief executive.

The Wall Street Journal quoted a source as saying the investment by Mr. Icahn is more than $1-billion.

Mr. Icahn told Reuters today that he believes Apple should trade at $700 a share.

In a telephone interview, he said he believes "Apple has the ability to do a $150 billion buyback now by borrowing funds at 3 per cent."

While a spokesperson for Apple was not immediately to comment, a spokesman did tell Bloomberg News that Mr. Cook indeed "had a very positive conversation with Mr. Icahn today" and that "we appreciate the interest and investment of all our shareholders."

In late April, Apple increased the size of its share buyback authorization to a whopping $60-billion by the end of 2015, compared to just $10-billion last year, describing it as "the largest single share repurchase authorization in history."

At the same time, it hiked its quarterly dividend by 15 per cent to $3.05.

Apple shares are well off their 52-week high of $705.07, but also well above their 52-week low of $385.10.

In an interesting side note to all this, Icahn Enterprises L.P. said only yesterday that Mr. Icahn "intends to use Twitter from time to time to communicate with the public about our company and other issues."

It cited a decision by the Securities and Exchange Commission in early April allowing companies to disclose material information via social media, and noted Mr. Icahn's Twitter handle, @Carl_C_Icahn.

"It is possible that the information that Mr. Icahn posts on Twitter (which may include information regarding companies in which we and/or Mr. Icahn have or may be contemplating an investment position) could be deemed to be material information," the group added.

"Therefore, in light of the SEC's guidance, we encourage investors, the media, and others interested in our company to review the information that Mr. Icahn posts on Twitter in addition to the information that we disclose using our investor relations website … SEC filings, press releases, public conference calls and webcasts."

U.S. sues to block airline deal
U.S. authorities are trying to block the $11-billion (U.S.) merger of AMR Corp., the parent of American Airlines, and US Airways Group Inc., warning the deal would hurt competition and lead to higher fares.

The U.S. Justice Department filed suit today, a day before a hearing in bankruptcy court to approve AMR's restructuring, whose focus is on the deal.

Six states are involved in the suit.

The Justice Department said in a statement that "the merger, which would result in the creation of the world's largest airline, would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher airfares and receiving less service."

The suit, added Attorney General Eric Holder, shows "the American people deserve better."

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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