BlackBerry stock plunges as Fairfax changes offer; CEO Thorsten Heins leaving

Fairfax Financial is no longer offering to buy BlackBerry outright but, instead, will lead a group that lends US$1 billion to the struggling smartphone maker, which will be under new management.

The news sent BlackBerry shares plunging to their lowest level in years, dropping $1.32 or 16.4 per cent to C$6.76 on the Toronto Stock Exchange and $1.17 to US$6.60 on Nasdaq.

Both BlackBerry chief executive Thorsten Heins and the chair of its board of directors, Barbara Stymiest, will be replaced by John Chen, who has experience in the technology sector, when the deal closes.

Among other things, Chen was chairman and CEO of Sybase from 1998 until the data management company was acquired in 2010 by SAP AG. Prior to Sybase, Chen held executive positions at Siemens AG, Pyramid Technology Corp., and Burroughs Corp.

BlackBerry’s board will also make room for a return of Prem Watsa, who is president and CEO of Fairfax Financial, the largest shareholder in BlackBerry. Watsa originally joined the board when the company was still called Research in Motion, but left some months ago before BlackBerry held a strategic review in August.

Watsa eventually announced on September 23 that Fairfax would lead a group that would pay US$9 per BlackBerry share, although there were many conditions attached, including a six-week period for due diligence.

That deal valued BlackBerry at US$4.7 billion, although most of the money was to come from other institutional investors that Fairfax planned to line up as partners.

Carmi Levy, an independent tech analyst, said Monday’s announcement wasn’t the end of a possible BlackBerry sale, but it was clearly not what the company had hoped for when it put itself on the block.

“It would have been so much simpler for them to just accept a cheque from a large suitor and be bought out,” said Levy. “They already admitted a year and a half ago they couldn’t go it alone; now they have to go it alone. There’s no good news in this story at this point. It adds an additional layer of challenge to a company that didn’t need it.”

The new plan is for Fairfax to lead a group that will buy US$1 billion of convertible debt — a type of security that will pay six per cent interest annually but can be converted into BlackBerry shares at US$10 each.

“The BlackBerry Board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders,” Stymiest said in a statement. “This financing provides an immediate cash injection on terms favourable to BlackBerry, enhancing our substantial cash position.”