Is the BlackBerry Buyout a Trap?

BlackBerry started the week strong on news that the company's Z10 will finally be released on March 22 and on a rumor that China's Lenovo Group might consider buying the beleaguered smartphone maker. While the stock has been on a steady trajectory higher over the past several months, having already risen 23.5% thus far this year, the stock remains a speculative rebound play. The very survival of the company is probably directly tied to the sales results that can be achieved over the next few months or quarters, regardless of whether a buyer for the company is found. While the Lenovo purchase prospect is in its infancy, leaving a meaningful opinion elusive, it does offer context for BlackBerry's future. The stock remains interesting at current levels but shouldn't be bought as a takeover bet alone.

The U.S. release
will be the first wireless carrier to offer the new BlackBerry Z10 to U.S. consumers when it launches the new product at the end of this week. Even though the Z10 has been in non-U.S. stores for quite some time, the domestic launch was delayed by longer test times required by specific carriers. AT&T has been taking pre-orders for the new device, which should alone be seen as a positive, even if it's more about show. AT&T was a critical partner for the release of some of the current smartphone leaders, making it a great place for BlackBerry to start.

The smartphone, which has already launched in more than 20 other countries, will sell for $199.99 with a two-year contract from AT&T. Other top wireless providers have yet to say when they will start selling the device, but it may be somewhat driven by early indications of sales strength. Even the company itself acknowledges that the U.S. launch is critical.

Buyout rumors
While the AT&T news was a significant positive for shares, the bigger catalyst was various remarks made by Lenovo's CEO Yang Yuanqing to a French publication: "As for BlackBerry, the file could eventually make sense, but I must first analyze the market and understand the exact weight of this company." A Canadian spokesman for Lenovo quickly placed the comments in context , making clear that a takeover was not a part of the computer-maker's current strategy. Still, the mere possibility helped the stock close up about 12% during Monday's session.

Since the remark, several commentators have weighed in on the potential of a Lenovo buyout, most with the view that it's an unlikely scenario. For one thing, BlackBerry is one of Canada's biggest technology success stories, and there's no indication that Canadian authorities would authorize a sale to a Chinese buyer. The regulatory has a history of taking a protective stance when it comes to the sale of those companies it sees as critical to the local economy and image.

The analysts weigh in
While some analysts have been quick to point out that their opinions of the stock aren't driven by a takeover scenario, many maintain a very positive outlook. Ed Snyder of Charter Equity Research sees a very positive future for the company:

Fundamentals will be a little more difficult; now it's blocking and tackling, and it's a lot tougher environment today than when BlackBerry first introduced the smartphone. They have lots of cash, they're gonna be around for a while, but it's going to be a real fight. The stock is going to be a lot less attractive once the first results come in, and people see it's going to be harder to take back share. It'll double couple years from now.

It seems premature to be calling for a 100% return in the next few years, ahead of the U.S. release, but even at half that level, the stock looks attractive. Scotiabank's Gus Papageorgiou said: "We believe the Street is pricing in such a weak fiscal 2014 that BB10 does not need to be an outstanding success to surprise." All of these signs point to strong institutional support for the stock and, perhaps more importantly, the patience to see how things play out beyond the first few weeks.

The outlook
While the Lenovo rumor appears to be too preliminary to warrant rushing into the stock, the general view on the stock is strong. Given the mixed prospects moving forward, I wouldn't call the buyout a trap, nor would I call it a catalyst worthy of action. BlackBerry remains on life support, and only solid traction in the U.S. is likely to keep the company alive. Even acknowledging its strong cash reserve and improving burn rate, it's all about sales. The surge earlier this week means I would probably sit the launch out on the sidelines and look for a better entry point for my speculative dollars.

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