Fairfax Financial Holdings Ltd., the company leading the move to snap up BlackBerry Ltd., wants more than US$1 billion of equity from investors for its preliminary offer to purchase the troubled smart phone company for US$4.7 billion.
If Fairfax is not able to acquire the equity it will arrange a short-term bridge loan that could be repaid later on with BlackBerry’s cash holdings, according to an article in the newspaper the Globe and Mail.
Prem Watsa, chief of Fairfax contacted several leading Canadian and American pension and private equity funds to support his bid for BlackBerry but only the Ontario Teachers’ Pension Plan is seriously considering joining the planned takeover, to sources interviewed by the paper.
Earlier on Monday, BlackBerry announced that it signed a letter of intent with a consortium of investors led by Fairfax, the largest shareholder of the company, to take BlackBerry private for US$4.7 billion. The deal is still subject to the consortium looking at BlackBerry’s books to conduct due diligence.
In takeover bids, purchasers usually demand a break fee from the target company in order to compensate the purchaser in case the company goes with another buyer. Observers said it is unusual for BlackBerry to commit to pay the break fee to Fairfax considering that its bid appears to be highly speculative. Takeover offers are also typically not made until the potential buyer has completed it due diligence studies.
These suggest that the BlackBerry board may have accepted Fairfax’s proposal in order to avert BlackBerry stocks from plunging further as bad news about the company kept piling up.
Announcement of the offer came just two days after the Waterloo. Ont.-based BlackBerry reported that it will lay off some 4,500 employees and that it expected to absorb a $995 million writedown for its fiscal quarter this year largely due to unsold inventory of its new smart phone line.
The purchase is being proposed as a leverage buyout to be financed with about $3 billion in bank loans, $1 billion of equity from investment firms and the 10 per cent stake Fairfax has in BlackBerry which is currently valued at $450 million.
While Fairfax has been quietly making offers to BlackBerry, sources said the company’s directors were not interested until Sept. 20 when it announced its writedown. Fear of the stock prices further plummeting, reports said, prodded the board to discuss options with potential buyers.