Can Fairfax Close Its BlackBerry Bid?

“We’ve got a track record of 28 years of completing what we’ve done. We’ve never re-negotiated. We thought long and hard before we offered $9 dollars a share and we’re not in the business of offering a number and at the last minute changing the figure. Over 28 years our reputation is stellar on that front. We just don’t do that.”

Fairfax Financial CEO Prem Watsa, Sept. 25

Update: BlackBerry Scraps Bid to Find Buyer, Replaces CEO Thorsten Heins, Gets $1 Billion Investment

Prem_Watsa_BlackBerry_Pinch

Fairfax Financial CEO Prem Watsa has said that his firm is not in the business of walking away from the deals it makes, or renegotiating them at the last minute. But there’s a chance that it may end up doing just that with its conditional takeover offer for foundering smartphone pioneer BlackBerry.

With a Monday deadline looming to complete due diligence and formalize its $9-per-share cash offer, Fairfax had not, as of this weekend, secured financing for the $4.7 billion transaction, according to a person familiar with the matter. And, while there’s still time left on the clock, it doesn’t look like Fairfax can pull this deal off at its original price. Keep in mind, BlackBerry shares closed at $7.77 on Friday – well below the $9 price tentatively offered by Fairfax in September.

“I will be surprised if Fairfax comes up with the $4.7 billion,” Wedge Partners analyst Brian Blair told AllThingsD. “Investors will be surprised, as well, given Blackberry’s deeply discounted stock price since Fairfax announced its intent to buy Blackberry in late September.”

With Bank of Montreal and Bank of America Merrill Lynch, Fairfax has been working hard to pull together the funds necessary to see its bid through. But it has been tough going. Reuters said that the other lenders the trio has approached are skeptical of BlackBerry’s ability to right itself, and have declined to lend financial support to the bid. And, given the company’s recent history, who could blame them? Piles of unsold smartphone inventory, layoffs and talent attrition, reports suggesting that the company will burn through most of its cash in just six quarters, withering manufacturing deals … morbid stuff, and easier used to unravel a rationale for taking part in a $4.7 billion deal, than for building one.

So, if Fairfax can’t rally outside financing by end of day, what then? There’s a chance that BMO and BofA Merrill Lynch could reach further into their own coffers and give the firm the cash it needs to submit a definitive bid. If that doesn’t happen, Fairfax could ask BlackBerry to extend the deadline, or it could walk way from the deal at no penalty, per its original arrangement.

Or it could step back and watch as another bid emerges, this one orchestrated by a new consortium fronted by BlackBerry co-founder and former co-CEO Mike Lazaridis. Evidently, Lazaridis, along with fellow co-founder Doug Fregin, has been chatting with investment firm Cerberus Capital Management and chipmaker Qualcomm about fielding a bid of their own. It’s not clear if those conversations have resulted in a definitive plan of action, but it’s an interesting twist in this story, particularly given the long-running murmurs that the real purpose of Fairfax’s bid was to smoke out other interested acquirers and hope that they close the deal.

Recall that not only did Fairfax’s letter of intent include language that allows it to walk away from the deal without penalty, it also included a go-shop provision that entitles it to 30 cents a share, about $157.2 million, if BlackBerry attracts and accepts an offer better than the $9 per share Fairfax is offering.

Mike Sitrick, a spokesman for Lazaridis, declined comment on this post, as did a spokesman for BlackBerry. Fairfax Financial, Cerberus, and Qualcomm did not respond to a request for one.

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