I’ve been out and about gathering opinions on Blackberry (BBRY), the handset and mobile communications company that is trying to find a buyer. The investment and trading community doesn’t have a real bright outlook for a deal. Many analysts have a hard time figuring out who would pay more than $10 per share, which is about where the stock is trading now.
Most sources in the hedge fund and banking community point out that Blackberry being “open to strategic options” is not a new thing, they’ve actually been trying to sell the company or assets for more than a year. Analysts and bankers struggle to come up with the right buyer that wants the company’s assets as a strategic play.
Asian buyers who are most frequently mentioned (Huawei, Lenovo, Samsung) would run into serious government barriers due to the sensitive nature of Blackberry’s communication networks (it supplies a lot of communications services to North American government officials, including the White House). Big tech companies, such as HP (HPQ) and Microsoft (MSFT) have already been burned on wireless deals gone awry. Google (GOOG) already did a deal.
There are other warts. One source in the hedge fund community, speaking under condition of anonymity, pointed out that Blackberry’s patent portfolio is one of the drags. Although Blackberry certainly has a robust portfolio, with over 11,000 patents, it is a net payer on royalties because of the payments it has to make to Qualcomm on the handsets.
That hedge fund manager doesn’t see a huge pop in the stock, and he has trouble seeing who would buy Blackberry.
Other analysts are similarly pessimistic. “I don’t think anybody needs it,” says Mike Genovese at MKM Partners. “It doesn’t really get you anything.”
Genovese currently has a $9 price target on the stock, but he says the breakup value is more like $6-$8. He assigns $2 per share to the cash position, $2-3 for the patent portfolio, $2-3 for the enterprise services business, and $0 for the handset business. That gets you to $6-$8.
Mark McKechnie at Evercore partners, an M&A firm, wasn’t too optimistic either. He’s pegged Blackberry’s breakup value at $10 per share, assigning $2B for patents, $2.32 pers share for the subscriber base, which is at about 72 million. He tosses in the cash and other assets to get to $10.
McKechnie says Blackberry will be a hard sell because many of the assets, such as the subscriber base, are in decay mode. He says Blackberry will need to find that strategic investor for the assets.
In a research note from yesterday, Evercore “upgraded” Blackberry from $8 to $10 and said the stock is now a “special situation” that will require a strategic buyer to prop up the stock price.
“It’s tough to figure out,” said McKechnie on the phone this morning. “But you never know, a potential strategic investor could look at it differently.”
This morning Blackberry was trading at $11, up 3%.
(Disclosure: No positions in stocks mentioned.)