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 South Korea's Samsung proposed an initial price range of $13.35 to
$15.49 per share, representing a premium of 38 percent to 60 percent
over BlackBerry's current trading price, the source said on
Wednesday.
Representatives from the two companies, which are working with
advisers, met last week to discuss a potential transaction, the
source said, asking not to be identified because the conversations
are private.
The Waterloo, Ontario-based company said in a statement that it "has
not engaged in discussions with Samsung with respect to any possible
offer to purchase BlackBerry. Shares of BlackBerry, which soared
nearly 30 percent following the Reuters report, fell back about 15
percent in after-hours electronic trading following the statement.
Samsung also told Reuters in Seoul that it has no plans to acquire
Blackberry. "Media reports of the acquisition are groundless," a
company spokeswoman said.
Separately on Wednesday, Canadian newspaper Globe and Mail reported
BlackBerry has shunned a handful of takeover overtures in recent
months as its board and largest investor think its restructuring
strategy will deliver greater shareholder value than current
acquisition offers.
The board believes offering prices, some in excess of $7 billion,
fall well below BlackBerry's potential asset value in the next few
years, according to the Globe and Mail report.
BlackBerry, a one-time investor darling that pioneered smartphones,
has regained some of its lost swagger under Chief Executive John
Chen, who is leading a bid to regain market share it has lost to
Apple Inc, Google Inc <GOOGL.O> and Samsung.
CORPORATE MARKET
"BlackBerry is in such transition today, so any investment has been
a bet on the future, so at this point Samsung is cutting in before
that full future becomes a reality," said Morningstar analyst Brian
Colello.
Samsung’s strength as the No. 1 global smart phone marker has been
built on making devices for the consumer market, which has become
crowded in recent years. With a takeover of BlackBerry, Samsung
could make greater inroads into the corporate market, where it has
trailed rivals.
BlackBerry still holds considerable sway among enterprise clients
for its strong security features - with U.S. President Barack Obama
still using one of the company's devices after taking office.
“How many Samsung phones do you see in offices? This would be
Samsung’s chance to get into the enterprise,” said BGC Partners
analyst Colin Gillis.
Any tie-up with Samsung would require the blessing of Prem Watsa,
whose Fairfax Financial Holdings Ltd is a major Blackberry
shareholder. Fairfax helped bankroll a debt recapitalization that
led to Chen's arrival in November 2013 as CEO. Paul Rivett,
president of Watsa’s Fairfax Financial Holdings, declined to
comment.
The bid would also face regulatory scrutiny in both Ottawa and
Washington. Under Canadian law, any foreign takeover of BlackBerry
would require government approval under the Industry Canada Act.
BlackBerry's secure networks manage the email traffic of thousands
of large corporate customers, along with government and military
agencies across the globe.
Samsung and its advisers also anticipate a complex approval process
at the Committee on Foreign Investment in the United States (CFIUS),
which reviews deals for national security implication, the documents
reviewed by Reuters show.
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PATENT PORTFOLIO
Samsung thinks that acquiring less than 100 percent of BlackBerry,
perhaps keeping part of it as a publicly traded entity with an
independent board, could help secure easier CFIUS approval. But it
doubts whether it can accomplish its strategic objectives with less
than 100 percent ownership, the documents show.
In 2013, the Canadian government had strongly hinted to BlackBerry
that any sale to China’s Lenovo Group would be rejected due to
security concerns, sources told Reuters at the time. Canadian Prime
Minister Stephen Harper's office would not comment on the report on
Wednesday but sources familiar with the Canadian government's
thinking said a Samsung buyout was unlikely to raise such concerns.
Ross Healy, a portfolio manager at MacNicol & Associates, which owns
a small stake in BlackBerry, said Samsung's reported offer
undervalues the company.
“To get a hold of the BlackBerry network and all its secure
features, that would be a real coup for Samsung, looking to
differentiate themselves from Apple and from others," he said.
BlackBerry's patent portfolio is composed of roughly 44,000 patents,
worth more than $1.43 billion in net book value as of August last
year, although many analysts think they could be worth much more.
Edward Snyder, managing director of Charter Equity Research, said it
made sense for Samsung to target BlackBerry's patents in its
outgoing battle with Apple and others, and that it likely would need
to bid for the whole company because BlackBerry management did not
want to only sell specific assets.
"Samsung will have to buy the whole thing and then and shutter what
they don't need,” he said.
BlackBerry launched its long-awaited Classic model on Wednesday,
hoping to help win back market share and woo customers still using
older devices with a keyboard. The phone resembles its once popular
Bold and Curve handsets.
In the third quarter, revenue at BlackBerry, which is increasingly
focusing on providing services like secure corporate networks, fell
to $793 million from $1.19 billion a year earlier, falling short of
analysts' expectations of $931.5 million.
Shares of BlackBerry jumped as much as 30 percent to $12.63 on heavy
volume in afternoon trading in New York.
The offer price would imply an enterprise value of $6 billion to
$7.5 billion for BlackBerry, assuming conversion of $1.25 billion of
convertible debt, according to the documents.
BlackBerry announced a high-profile security partnership with
Samsung in November. The partnership will wed BlackBerry's security
platform with the South Korean company's own security software for
its Galaxy devices.
(Additional reporting by Vincent Lee in SEOUL, Alastair Sharp and
Allison Martell in TORONTO and Randall Palmer in OTTAWA, Editing by
Soyoung Kim and Christian Plumb)
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