BlackBerry: This Dog Won't Bite

BlackBerry: This Dog Won't Bite

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Despite Wall Street CEOs taking their concerns regarding the impact of an extended government shutdown or a technical default directly to President Obama today, the market appears to be taking things in stride for now. Stocks fell out of bed this morning, but by the end of the session, the S&P 500 was roughly unchanged, with a 0.1% loss. The narrower, price-weighted Dow Jones Industrial Average lost 0.4%.

Investor concern was more visible in the equity options market, as the CBOE Volatility Index fell back 6.8% today, to close at 16.60. The VIX, Wall Street's "fear index," is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.

BlackBerry's new suitor is less than that
Shares of BlackBerry managed to buck the broad market's trend today with a 0.5% gain. Investors appear to be cautiously endorsing reports that private equity firm Cerberus Capital Management may be interested in acquiring the ailing smartphone maker. Last month, a consortium headed by Canadian insurer Fairfax Financial signed a letter of intent to buy BlackBerry for $9 per share, valuing the company at $4.7 billion. Cerberus is no stranger to distressed assets: It bought Chrysler Group LLC in 2007, in what turned into its worst, most public failed investment.

However, the news is not much to hang your hat on. According to TheWall Street Journal, Cerberus aims to sign a confidentiality agreement that would enable it to inspect BlackBerry's books. That's only evidence of the minimum degree of interest from a potential acquirer ("potential" being the operative word).

Even the offer from the Fairfax consortium is eliciting a fair bit of skepticism from the market -- witness the wide discount at which the stock is trading relative to the $9 offer price. According to the letter of intent, the group has until this week to produce a proper merger agreement with BlackBerry. Failing that, any delay would bite into the period reserved for due diligence.

BlackBerry is in a terrible bind right now. Being acquired is its best hope, but the evidence that the Fairfax deal will be consummated on the original terms (or any terms) is unconvincing. However, the company published a filing with the Securities and Exchange Commission yesterday acknowledging that even news of this deal "may have negatively affected demand for the company's products." Furthermore, the filing also indicated that the adoption of its new business-focused offering, BES 10, has been "slower than anticipated."

I think BlackBerry's franchise - even in the business space -- could melt away much more quickly than investors anticipate. Consequently, the potential for further significant share-price losses is very real. The stock is not, in any sense, an investment; it's an outright speculation. Investors who are looking at it now ought to keep this firmly in mind.

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Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on Twitter @longrunreturns. The Motley Fool has no position in any of the stocks mentioned, either. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published