By Alastair Sharp and Sinead Carew
TORONTO/NEW YORK (Reuters) – Shares in BlackBerry Ltd fell more than 6 percent on Wednesday on doubts about a $4.7 billion bid to take the smartphone maker private, and after a big U.S. carrier said it would stop stocking BlackBerry smartphones in its stores.
In an announcement that highlighted the faded relevance of the company that pioneered on-the-go email, T-Mobile US Inc said it was no longer efficient to keep BlackBerry devices in its stores.
T-Mobile, the fourth largest U.S. wireless provider, will still ship BlackBerrys to customers who want them, most of them business users, said David Carey, executive vice president for corporate services.
The announcement from T-Mobile, which competes aggressively on price and is better known for consumers than for business customers, followed BlackBerry’s news that it is pulling back from the consumer market, where it has bled market share to Apple Inc’s iPhone and devices using Google Inc’s Android software.
BlackBerry, which put itself on the block in August, on Monday accepted a tentative $9 a share offer from a mostly Canadian consortium led by domestic insurer Fairfax Financial Holdings Ltd, BlackBerry’s biggest shareholder with a 10 percent stake.
BlackBerry says its second-quarter results will feature slumping sales, a big operating loss and hefty job cuts. It reports results on Friday, but canceled plans for a conference call with investors because of the Fairfax bid.
BlackBerry’s Nasdaq-listed shares ended the day at $8.01, almost a dollar below the Fairfax group’s offer price.
They rose slightly in after-market trade after Fairfax Chief Executive Prem Watsa, a savvy investor often described as Canada’s answer to Warren Buffett, said he was confident the proposed deal would go ahead.
“It has landed on hard times but we think it will flourish over time in a private setting, as a private company where there is no speculation as to what happens every quarter or every six months and the management team can focus on building it over the long term,” Watsa told Reuters in an interview.
Watsa declined to name any of the other potential investors. Fairfax does not plan to contribute more than its existing stake in BlackBerry and has left itself the option of withdrawing the bid after reviewing BlackBerry’s books and operation.
“I don’t think people see it as a real bid,” said Eric Jackson of hedge fund Ironfire Capital, who closed a small position in BlackBerry after its June earnings report. “It wasn’t a firm offer and Prem can walk away from the deal at any time with no penalty.”
FINDING THE FUNDS
Watsa is personally seeking more than $1 billion from several leading Canadian and U.S. pension and private-equity funds to support the $4.7 billion bid, the Globe and Mail said on Wednesday, citing unnamed people familiar with the talks.
“Prem Watsa has to come up with other interested parties and to me it’s a pretty unappetizing deal,” said Barry Schwartz, portfolio manager at Baskin Financial Services in Toronto, which does not own BlackBerry shares. “It would be more appetizing if Prem was putting up more of his own cash to make the deal.”
But rating agency Fitch warned that a further concentration of Fairfax’s capital in BlackBerry could have a negative impact on its rating of the insurer. Moody’s says the bid is credit negative for Fairfax because moving its public stake into a private deal reduces liquidity.
The Globe and Mail said Watsa was pitching the acquisition as a leveraged buyout that would be financed with more than $3 billion in bank loans, $1 billion in equity from institutions and Fairfax’s BlackBerry stake.
If it cannot raise enough equity to help finance the bid, the Globe said Fairfax intends to arrange a short-term bridge loan that could be repaid with BlackBerry’s cash holdings of about $2.6 billion.
Watsa declined to comment on how the group plans to finance its bid, or which funds might take part, except to say it was Canadian-led and did not currently include “strategic investors” that are active in BlackBerry’s field of business.
Bernstein analyst Pierre Ferragu said he doubted financial sponsors would be comfortable with $3 billion of debt, given the only collateral BlackBerry could offer is its patent portfolio, which he valued between $800 million and $1.5 billion.
“We believe the Fairfax initiative is unlikely to come to fruition and see the next valuation floor for the stock at $5,” he wrote in a note to clients.
In the U.S. market AT&T Inc, No. 2 U.S. mobile operator said it is still selling BlackBerrys out of its stores and Verizon Wireless, the biggest U.S. mobile operator, says it will provide its customers with what they want. Sprint was not immediately available to comment.
BlackBerry’s woes will hurt suppliers. Contract electronic manufacturer Jabil Circuit, which counts BlackBerry as its second largest customer, said it is very likely it will part ways with the company, which could take between 28 and 34 cents out of its 2014 earnings per share.
(With additional reporting by Leah Schnurr in Toronto and Neha Alawadhi in Bangalore; Editing by Janet Guttsman and Andrew Hay)