BlackBerry Abandons Buyout, CEO Quits

Canadian smartphone maker cuts stock investment deal, not company sale.

Thorsten Heins, president and CEO at BlackBerry, speaks at a conference on May 14, 2013, in Orlando, Fla.
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BlackBerry's CEO Thorsten Heins announced on Monday he is leaving the company, the same day the smartphone maker announced it is ending its effort to sell itself for $4.7 billion to a consortium of companies led by Fairfax Financial Holdings Limited, agreeing instead to $1 billion stock purchase with that group.

The Canadian smartphone company also announced that John Chen, the former chief executive of business software company Sybase, will become the interim CEO once the deal is finalized, after which Heins will depart. The transaction is expected to be completed within the next two weeks. The company arranged the previous deal with Fairfax in September, after declining profits led BlackBerry to announce it would focus more on business software and less on consumer products.

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"I am pleased to join a company with as much potential as BlackBerry," Chen said in a press release. "BlackBerry is an iconic brand with enormous potential – but it's going to take time, discipline and tough decisions to reclaim our success. I look forward to leading BlackBerry in its turnaround and business model transformation for the benefit of all of its constituencies, including its customers, shareholders and employees."

Companies including Google, Intel and Cisco were reportedly interested in buying BlackBerry, and other partnerships are still possible with the conditions of this new stock deal with Fairfax. Hiring Chen as interim CEO to use his experience managing in the business software sector gives BlackBerry an opportunity to reinvent itself with a focus on that sector, making a breakup or a bid to go private unlikely for the near future, says Ramon Llamas, research manager for the mobile phones team at the International Data Corporation. Pieces of BlackBerry still have value including its patents and business network management, Llamas says.

"There are pieces of BlackBerry that are valuable, and they are all intricately linked," Llamas says. "If you pull out any of those pieces, can they stand alone with different companies? Yes. But it would be challenging."

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This investment is also a sign that BlackBerry and its investors are committed to keeping the smartphone maker public for now, as Barbara Stymiest, chairperson of BlackBerry's board, thanked Fairfax for its confidence in the company.

"Some of the most important customers in the world rely on BlackBerry and we are implementing the changes necessary to strengthen the company and ensure we remain a strong and innovative partner for their needs," Stymiest said in a press release.

BlackBerry's standing as a once-dominant mobile phone company has dropped since the rise of smartphones designed by Apple and manufacturers who use Google's operating system. BlackBerry reported a net loss of approximately $1 billion in the quarter ended Aug. 31, mainly due to writedowns on its unsold phones. BlackBerry has a ways to go to reinvigorate the company, so this new deal may portend a breakup from the inside, says Bill Menezes, a principal research analyst who covers mobile communication at technology research firm Gartner.

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"This means that clearly there is some doubt that a wholesale buyout of the company is of value to an investor," Menezes says.

"You may have the new management parceling out for whatever it can get on the businesses that are no longer going to be core to the company, including perhaps the handset business. They may solicit private offers for those businesses that the board would then approve."