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Let’s be honest. Fairfax was never going to be able to raise the US$4.7-billion it needed to take BlackBerry private.
And let’s remember: the buyout didn’t really solve anything. BlackBerry wasn’t suddenly going to be on the front foot overnight. It would’ve only served to take the painful surgery out of the public eye (much like Michael Dell’s smartly engineered Dell buyout).
As the death spiral now accelerates, BlackBerry’s followed the playbook perfectly (excuse the pun)… it’s thrown its CEO to the wolves.
Of course, the biggest irony in this move is that Thorsten Heins had very little to do with the enormous mess the Waterloo-based handset maker has found itself in. After all, he shipped the most impressive devices the company’s developed in years. And he launched an operating system that had actually — somewhat — caught up to the competition. Not quite to where the puck is, but at least BlackBerry wasn’t still stuck in a time nearly forgotten.
Heins was many things (And remember, the board backed him). He was decisive. Engaging. Smart. But he was also too late. Had the co-founders (and former co-chief executives) Mike Lazaridis and Jim Balsille been forced out earlier than last year, this story might’ve had a different ending.
Heins found himself (and the company) in an impossible position from day one. When he took over in January 2012, BlackBerry’s worldwide market share had declined to almost the point of no return. Its new operating system (BlackBerry 10) was late. There was precious little in its catalogue to tide it over until its BB10 devices launched (it hardly managed a handful of device launches in 2012). It had lost mindshare — and, crucially, carrier support — in the US (and western Europe). And, it was fighting a battle with Nokia for third place in the ecosystem war — a position that wasn’t really sustainable in the first place.
Yet, its success in emerging markets – especially ones where it remained dominant like South Africa, Indonesia, Mexico — masked over the cracks.
Until all of those problems Heins found on day one (and which he knew before he even took the job given that he was COO) caught up with BlackBerry. It was the perfect storm. And Nokia and the Android OEMs (primarily Samsung) were only too happy to gobble up the market share. (There’s deep irony too in the fact that Heins has been booted just over a month after launching the Z30 — the best phone BlackBerry ever made — albeit about 18 months too late).
The ‘only’ strategic mistake Heins made — and the one which cost the company — was not switching BlackBerry to Android. The most secure messaging and email platform in the world on top of the dominant mobile platform… the proposition is very compelling. (And if he’d made that move, he’d have gotten fired even sooner.)
So where to for BlackBerry?
It’s difficult to see what a US$1-billion cash infusion from Fairfax and the rather ominous sounding “other institutional investors” is going to solve.
The problems don’t evaporate with the issue of these convertible debentures. Rather, the fact that BlackBerry has needed to raise this money means things are far worse than they seemed. (As an aside, the debentures have a term of seven years, and convert at US$10 a share — versus the current sub-US$7… That’s more than a little optimistic!)
If you wouldn't lend money to buy Blackberry, why would you lend money to Blackberry?
— Benedict Evans (@BenedictEvans) November 4, 2013
In its most recent quarter, revenue in the US was US$414-million, less than half of the US$868-million in the year ago quarter. In Europe, the Middle East and Africa, revenue plummeted from US$1.1-billion to US$686-million. In Latin America, from US$324-million to US$196-million and in the Asia-Pacific, from US$386-million to US$277-million. That gives some insight into the pace of the revenue decline…
And what of John Chen who was named interim CEO? Chen is senior adviser at Silver Lake Partners (yes, that Silver Lake — the same private equity company which led the leveraged buyout of Dell). But, you wouldn’t know that Chen has any ties to private equity or Silver Lake from reading BlackBerry’s official announcement: “BlackBerry Receives Investment Of
U.S. $1 Billion From Fairfax Financial And Other Institutional Investors”.
This could be an oversight from a tardy PR. Or it could be deliberate. I know what my money’s on.
Prepare for the break-up. BlackBerry is going to be disassembled, piece by piece… It’ll still be in business. But there’s a lot than can — and will — be sold. Patents (probably the most valuable). A services unit. A mobile device management company. A messaging business.
I wouldn’t expect too many new phones, given that its hardware business is worth exactly zero (and a gigantic drain on cash, working capital and resources).
Chen’s already laid out his plan, right there in the statement: “I look forward to leading BlackBerry in its turnaround and business model transformation”. In a year from now, BlackBerry will be unrecognisable to most. He’s been given a mandate by the board (and investors), and he’ll do what shrewd businessmen do in America.. “maximize value for shareholders”.
And Heins’ star-hire, creative director Alicia Keys? She’ll probably carry on making music. Not much will change.
Some commentators have argued that BlackBerry’s future hinges on BBM’s success in the cross-platform space. Trust me, growing its BBM user base is going to be the least of its problems.