By Satyajit Mishra
On the 23rd of September, BlackBerry announced that it was to sell the company to a group of investors; lead by Prem Watsa with the intention of taking it private. The deal valued at $4.7 billion is only 5% of what the company was worth in 2008. The struggling handset maker insists this can help turnaround the company. However, having failed to reverse its fortunes several times, this new move looks to be accompanied by uncertainty; uncertainty among- investors, employees and manufacturing partners.
Googles Android and Apples iOS operating systems have time and again dealt repeated blows to the sales of BlackBerry. Even the much hyped Z10 couldnt match investor expectations. BlackBerry is trying to cut costs across all sectors. The company seeks to reduce expenditure by approximately 50% over the next three quarters. In order to do this, the company has already laid off 40% of its workforce. BlackBerry is even set to sell off its office space as they plan to use their real estate to quickly realize additional cash for its cash balance. This is being done to attract other investors who want more cash, less assets. Investors would have been a lot better off, if the company had agreed to sell in 2012. However, due to lack of leadership, this did not fall through. In the next 6-12 months, these investors are set to lose potentially everything. Even the manufacturing partners are worried about their future with BlackBerry. The huge fall in demand for handsets and the massive unsold inventory pile-up has affected them significantly. Many of them are considering disengaging with BlackBerry and searching for other partners.
Prem Watsa, the boss of Fairfax Financial Holdings, a Canadian insurer and investment firm that is leading the group of investors, is very familiar with BlackBerry. Mr. Watsa was one of the directors on the board of BlackBerry before he resigned in August to avoid a conflict of interest when Fairfax set up a committee to review options of BlackBerrys future. Mr Watsa is no stranger to contrarian bets. Over the years Mr Watsa has focused on beaten-up stocks and has even managed the purchase of well-structured credit default swaps before the U.S. housing market collapsed in 2008. These securities were essentially bets that paid off as a result of the housing meltdown, netting his firm more than $2 Billion in investment gains.
BlackBerry could prove to be the most challenging investment yet for the Indian born Mr.Watsa. He will attempt to turnaround BlackBerrys operations in the face of mounting competition from the likes of Apple and Samsung. This shall be done by abandoning the consumer market and instead focusing on the corporate one, where it offers businesses software to manage and secure their workers mobile devices. How effective this will be is to be seen, as firms across Europe and North America where their employees use BlackBerrys have shown that their employees have reduced the usage of the handset from 57% in 2009 to 21% in 2013. This is set to drop to single digits by 2015.
Additionally, companies are now buying the same smartphones and tablets that their employees like using at home. So, quitting the consumer market may in turn hamper the corporate arena.
It is to be seen if Prem Watsas modus operandi of contrarian bets is to pay off yet another time.
Currently in 3rd year of B.Com under Calcutta University specializing in accounting and finance. Also pursuing Chartered Accountancy. Reading research and analysis of the global economy, political matters that influence our economic decisions, game theory and strategies in war, strategy formulation and implementation and contemporary issues in marketing interest him a lot.