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BlackBerry scraps buyout plan

Ailing smartphone vendor appoints new turnaround CEO, seeks cash for rebuild

After yesterday’s market tumble, BlackBerry is now worth just $3.38bn.
After yesterday’s market tumble, BlackBerry is now worth just $3.38bn.

Canadian smartphone vendor BlackBerry has elected to stop seeking a buyer for its ailing business and yesterday announced that CEO Thorsten Heins would step down, Reuters reported.

Instead of a sale, BlackBerry said it would raise $1bn through the issue of convertible notes to a group of long-term investors, including its largest shareholder, Fairfax Financial Holdings. The news sent BlackBerry's stock into a tail spin, shaving 16% off its value as confidence in the company's future disintegrated.

The company named John Chen as its interim CEO and executive chairman. Chen is regarded as a turnaround specialist, having rescued the balance sheet of Sybase Inc in the 1990s; the enterprise software company was eventually acquired by SAP AG in 2010.

One-time smartphone pioneer BlackBerry saw its market capitalisation dive from a 2008 peak of over $80bn to around $5.5bn, following the emergence of consumer-oriented smartphones that capitalised on a category largely invented by BlackBerry. After yesterday's market tumble, the company is now worth around $3.38bn. Fairfax lodged the only formal bid for the struggling business, but insiders said CEO Prem Watsa had trouble raising the $4.7bn needed to complete the transaction.

In the interim, while slashing the size of its workforce and pursuing the sale of properties in its home town of Waterloo, Ontario, BlackBerry approached a number of prospective alternative buyers, including SAP, Lenovo and Facebook.

"BlackBerry is haemorrhaging employees, it is haemorrhaging customers. The only thing that's growing is doubt," said John Stephenson, a senior vice president at First Asset Investment Management, a BlackBerry shareholder.

"You can argue that it's an OK day for Fairfax and Prem Watsa, but it's a miserable day for Canada. It's a miserable day for BlackBerry investors and BlackBerry employees."

But BlackBerry defended its review process as "robust"

"The board believes that the deal outlined today was the best proposal, and in the best interest of its shareholders," said a spokesman.

At least one analyst believes Chen's appointment as interim CEO indicates a belief within the company that it must leave its loss-making devices business behind.

"[Chen's appointment] suggests that Fairfax and others see the company's future in software rather than devices," said Jan Dawson, chief telecoms analyst, Ovum.

"This makes sense in light of BlackBerry's sputtering device shipments over the past few months, but it's still not clear where that growth will come from."

But Chen himself said he had no plan to abandon the handsets unit and envisaged an 18-month rescue plan.

"I'm doing this for the long term," he said. "I'm going to rebuild this company. I know we have enough ingredients to build a long-term sustainable business. I've done this before and seen the same movie before."