TORONTO -- Analysts predict Fairfax Financial will follow through on plans to buy BlackBerry (TSX:BB) but could pay substantially less than originally announced, as the smartphone maker's market value erodes.
Fairfax announced Sept. 23 it was leading a group that would offer US$9 per share, subject to a number of conditions.
But CanaccordGenuity analyst Michael Walkley said a $7-per-share bid is likely to materialize once Fairfax and its partners complete due diligence over the next month.
Based on CanaccordGenuity's assessment, BlackBerry would be worth about $1 billion less than Fairfax's initial proposal, which valued the company at US$4.7 billion.
Walkley said he has reassessed the company's assets to take into account BlackBerry's flagging hardware operations, which were the main reason for a US$965-million loss in the company's second quarter.
"Given our belief BlackBerry's hardware business will struggle to return to profitability despite significant cost cuts and a refocus on more high-tier enterprise segments, we struggle to assign any value to the hardware business," Walkley wrote.
"Our sum of the parts analysis values BlackBerry at roughly $3.75 billion."
BlackBerry shares have fallen well below the proposed bid value since Fairfax announced the offer a week ago. On Monday afternoon, the stock was down 13 cents at $8.15 on the Toronto Stock Exchange.
Investors have been skeptical Fairfax will successfully complete the acquisition of BlackBerry because its quickly eroding market share and high operational costs create the kind of uncertainties that make investors and lenders nervous.
"We doubt a strategic investor will show interest, given the pace of decline in BlackBerry's business," wrote Stuart Jeffrey, an analyst at Nomura, who has reduced his target price to $8 in order to take into account risks to the current bid.
"With BlackBerry's change in strategy now very public, we believe that operators, distributors, consumers and enterprise customers and partners will quickly drop their support for BlackBerry and look at alternatives."
Fairfax head Prem Watsa made an attempt to calm those concerns with a limited number of media interviews last week where he reassured the market a deal would be done.
-- The Canadian Press