First Published on Motley Fool (www.fool.com) – NOVEMBER 5, 2013
Last week, we watched to see if BlackBerry (NASDAQ: BB ) would circle the wagons and survive the swirling acquisition vultures overhead (“So What is Really Happening With BlackBerry”). This morning, there is positive news that BlackBerry is doing just that. Prior to the market opening, the BlackBerry Board decided to forego an outright buyout bid by Fairfax but raised $1 billion from them to stay alive.
According to a Monday press release, BlackBerry “has entered into an agreement pursuant to which Fairfax Financial Holdings Limited (“Fairfax”) and other institutional investors (collectively, the “Purchasers”) will invest in BlackBerry through a U.S. $1 billion private placement of convertible debentures.”
The capital transfusion avoids an outright sale and floats BlackBerry while more changes can be made.
“This financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing our substantial cash position,” said Barbara Stymiest, Chair of BlackBerry’s Board
But there’s more to this move than a capital lifeline. CEO Thorsten Heins is out along with several board members. Heins also gets to bail with a hefty golden parachute worth an estimated $22 million.
Fresh juice for BlackBerry
This is exactly what BlackBerry watchers have wanted to see long ago. Ever since BlackBerry started to hit heavy turbulence in the market, everyone knew that Thorsten Heins did not represent change. He was groomed by the previous co-CEOs Mike Lazaridis and Jim Balsillie that led BlackBerry into this mess in the first place. His appointment was a clear signal that bad management would continue.
Heins has presided over a company that has been begging for a turnaround since January of 2012. Instead, investors have watched the stock fall from as high as $18 down to the mid-$6 range since he took the CEO seat. BlackBerry has suffered a perpetual status quo of bad execution. For proof, one only needs to look at the multiple delays in the launch of BlackBerry 10, the operating system hailed to be the savior of the company. In addition, several new phone releases were delayed over the past year, adding further frustration for the BlackBerry customer base. Heins’ role at CEO was a bad move for BlackBerry and his departure is long overdue.
Taking it on the Chen
There may be no need, however, for an extensive CEO search after all.
John Chen, formerly of Sybase and Siemens, has been named interim-CEO and Prem Watsa, Chairman and CEO of Fairfax, will be appointed Lead Director and Chair of the Compensation, Nomination and Governance Committee.
I look forward to rejoining the BlackBerry Board and to working with the other directors and management team, under John Chen’s leadership, to shape the next stage of BlackBerry’s strategy and growth, said Watsa.
Chen is well known for his turnaround efforts at Sybase. Chen introduced the concept of the “Unwired Enterprise” at the firm, extending enterprise applications to mobile users. He can bring turnaround experience to BlackBerry and that is exactly what the company needs. It will be very interesting to see what happens when Chen assumes the CEO chair in the coming weeks.
Is this BlackBerry’s Waterloo?
BlackBerry shares are took a nose dive on the news early but is slowly recovering some of its early day losses. Last week, I wrote that the company appears to have no intention of going under any time soon regardless of the naysaying in the market. With today’s $1 billion injection, the welcomed departure of Heins and the naming of John Chen to serve as interim-CEO, BlackBerry continues to maintain a weak heartbeat.
Can Chen make the necessary operational changes to get execution and product delivery back on track? Specifically, can Chen also retain their talent or will many techs start jumping ship? In recent weeks, Apple and Intel have both held recruiting events near the BlackBerry Waterloo campus. Google and Square have also opened offices in Waterloo hoping to lure away remaining BlackBerry talent.
Is the juice worth the squeeze?
Will BlackBerry split the company into separate hardware and software firms? Is the firm holding out for a future deal of some kind? Is BlackBerry in a death spiral? Jim Cramer called this a “desperation move” on CNBC Monday morning. Regardless of the $1 billion infusion, the truth remains that the cash clock is ticking for Blackberry. While many analysts remain in a hold pattern, many are starting to slide to an underperform or sell stance.
There may still exist a breath of life if Blackberry can start executing on delivery of their operating systems and beefed up products while maintaining a loyal following. Over at Apple, some think Tim Cook does not have the same Steve Jobs intensity, leading to a slowdown or complete lack of innovation in their product line over the past year. Microsoft also continues to struggle to find its way in the smartphone market. This is providing a little extra cushion, allowing BlackBerry room to get its house in order.
Even with no debt and major cash on the books to allow the company to languish longer, it is clear that time is running out for BlackBerry. Investors are reading today’s news with a bit of disappointment. Uncertainty remains as to what exactly will happen. As the stock remains depressed due to market negativity and cash burn, some see opportunity in chaos. Retaining Chen may be the answer. This is likely the final move that will truly make or break BlackBerry’s future in North America once and for all.
Fool contributor Gavin P. Smith has no position in any stocks mentioned. Follow Gavin P. Smith on Twitter.
Link to Article on Motley Fool: http://www.fool.com/investing/general/2013/11/05/the-beat-goes-on-for-blackberry.aspx
