BlackBerry Has a $2.6 Billion Cash Problem
BlackBerry chief executive Thorsten Heins has a tough sell ahead of him.
He isn't just selling smartphones anymore. Heins is also responsible for completing a $4.7 billion transaction that would take BlackBerry private. Prem Watsa's Fairfax Financial Holdings has teamed with a group of unnamed partners in a conditional $9-per-share buyout.
Judging by the price action, Wall Street sees the deal as nothing more than a lifeline -- one that could be yanked away at any time. BlackBerry closed at $8.03 a share Friday, or about 11% below the proposed purchase price.
Watsa, in an apparent bid to shore up confidence, characterized Fairfax's proposal as a "definite offer" in a New York Times interview.
Heins, for his part, said in a statement that BlackBerry remains "a financially strong company with $2.6 billion in cash and no debt." True, sort of. He's counting not only cash but also short and long-term investments.
Even if that's fair -- let's say that it is -- BlackBerry's bounty is unlikely to affect future profits. How could it, when the company has spent years holding billions in the bank without a smidgen of extra sales to show for it?
Rewind to 2011 with me. BlackBerry had $2.69 billion in cash and investments and no debt. A year later, that total dropped to $2.11 billion before rebounding $2.88 billion in March and then dropping (again) to $2.57 billion as of Aug. 31. Revenue fell in each of the past two fiscal years. Sales plummeted 49% in Q2 and are off 33% over the trailing 12 months. Heins would have done better to pay shareholders a dividend.
Now compare that with what Apple and Google have done. Each of BlackBerry's two primary smartphone competitors have enjoyed strong, double-digit revenue growth and expanding cash balances since 2011. Apple also pays a dividend that yielded 2.60% as of this writing.
Watsa is a proven investor, and he may very well get the best of this deal, too. But let's not pretend that Heins' verbal show of strength is anything more than a chess move. A very transparent one, at that.
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The article BlackBerry Has a $2.6 Billion Cash Problem originally appeared on Fool.com.Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple and Google at the time of publication. Check out Tim's Web home and portfolio holdings, or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.The Motley Fool recommends and owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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