TORONTO -- Another change of plans at BlackBerry puts one of the smartphone maker's largest stakeholders in the driver's seat to raise $1 billion in hopes it can resuscitate the struggling company.
The investment firm Fairfax Financial has scrapped plans to purchase BlackBerry (TSX:BB) outright, but will lead a group of investors to inject US$1 billion of funds into the Waterloo, Ont.-based company under new management.
Among the changes, chief executive officer Thorsten Heins will exit the company with a hefty payout estimated at $22 million. John Chen, the former CEO of software data management company Sybase, was appointed chairman of BlackBerry's board of directors and interim CEO.
The announcement Monday was a surprise, considering Fairfax and others had been poring over BlackBerry's financials to determine whether it was worth making an official bid for the company.
Instead, the new plan extends the lifeline for a technology company that has struggled with an identity crisis, an eroding consumer base, money-losing operations and a failed search for an outside buyer.
"It shows that their intellectual property is not worth much; it shows that their subscriber and cash flows are unpredictable, so it's not a good company for private equity to buy," said Mike Genovese, an analyst at MKM Partners.
"They don't need the money from Fairfax, but this deal is just to show Fairfax has confidence."
In an interview with The Associated Press, Fairfax president and CEO Prem Watsa said he worked with a consulting company that recommended against taking BlackBerry private with borrowed money.
"To load this company with too much debt was not appropriate," he said.
"We probably could do it, but we decided not to add high-yield debt to the company's structure."
Fairfax backed off completely on a leveraged buyout after getting the recommendation, even though five or six investors had been interested, Watsa said.
Regardless of what happened behind closed doors, BlackBerry has never been in such a perilous position, partly because all that's certain now is new leaders will try to overcome years of massive setbacks.
BlackBerry recently booked a second-quarter loss of US$965 million on the writedown of its sales flop, the BlackBerry Z10 touchscreen. Another US$400 million in charges will come before the end of May 2014, associated with the cost of laying off 4,500 employees, reworking of its smartphone lineup and changes to the company's operations.
New leadership from Chen is hoped to alter the course of BlackBerry. His past experience turning Sybase back into a profitable company, and expanding its business into mobile devices, shows he is up to the challenge.
The question remains whether Chen's appointment is too little, too late. BlackBerry has endured backroom disputes over its direction, major delays in its most recent smartphone line and mixed messages on whether the devices were for business consumers or an attempt to grab a piece of the market from Apple and devices on the Android operating system.
Investors weren't impressed with the new direction, sending BlackBerry shares to their lowest level since September 2012. The stock closed down 16.56 per cent, or $1.34, to $6.75 on the Toronto Stock Exchange and $1.28 to US$6.49 on the Nasdaq.
"Other potential bidders have been inside the tent, nobody liked what they saw. Why should we?" wrote National Bank analyst Kris Thompson in a note to investors.
"Investors should expect very poor operating results in the coming quarters (as well as) a declining subscriber base, falling shipments, enterprise defections, market share loss, etc."
Thompson yanked back his target price on BlackBerry shares to US$3 with "above average" risk, from its previous $9 target.
Other changes in the boardroom include the ousting of longtime board of directors chairwoman Barbara Stymiest, who received the lowest level of support from shareholders at the company's annual meeting in July.
-- The Canadian Press