BlackBerry Signs Letter of Intent, May Sell for $4.7 Billion

Everyone has known that something had to change in BlackBerry's increasingly rapid downward spiral. On Monday, that something emerged: The company has agreed to an intent-to-purchase $4.7 billion deal that would take it private.

Fairfax Financial Holdings, which already owns about 10 percent of the smartphone maker, has signed a letter of intent to pay $9 a share in cash for the company. BlackBerry said it had entered into the agreement on the advice of a Board of Directors' special committee, which had been tasked with evaluating various options, including a purchase.

Last Thursday, prior to Friday's announcement that the company would lay off about 40 percent of its workforce and report a $1 billion loss due to a write-down on BlackBerry 10 phone inventory, the company's stock closed at $10.52/share.

Not a Purchase Agreement

The letter of intent is not a purchase agreement, but gives Fairfax and its lenders an opportunity to perform due diligence to see if the deal makes sense. Between now and an actual acquisition, Fairfax will kick BlackBerry's tires. If satisfied, Fairfax will obtain financing, and then the deal must be approved by appropriate regulatory agencies. For its part, BlackBerry can talk with other possible purchasers during that time.

If BlackBerry finds another suitor during that period and ceases negotiations with Fairfax, it will need to pay Fairfax 30 cents per share, or about $157 million. Given these hurdles, a key question is why an intent-to-purchase was announced, instead of waiting until a sale deal was completed. The answer is that BlackBerry's falling stock price has meant that the longer a dramatic step was delayed, the more value the company would lose.

To back up its letter of intent, Fairfax is now soliciting financing from Bank of America Merrill Lynch and BMO Capital Markets, with Nov. 4 set as a...

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