On Monday October 14, Canadian smartphone maker and enterprise software company, Blackberry (formerly Research In Motion), released an open letter to it’s loyal customers, discouraged investors and confused corporate clients to try and convince them to keep the faith amid all of the negative publicity and rumors surrounding the once dominant tech company.
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Blackberry’s market share free fall has been well documented. The stock price has fallen from a high of $145 in June of 2008 to an abysmal current market capitalization of $4.2 billion USD ($8.10/share). Their marketing blunders have been numerous since the release of their not-so-revolutionary operating system, Blackberry 10, on January 30, 2013.
In mid-August of this year, after just six months into their transition from Blackberry 7 to BB10, Blackberry seemed less optimistic towards the future and teamed up with JP Morgan Securities to consider “strategic alternatives”. The board of directors, led by current Blackberry CEO Thorsten Heins, announced the company would consider a merger or acquisition with another publicly traded company or a leveraged buyout from a private equity firm with adequate resources. Once a deal was approved, shareholders would be bought out at the agreed upon price. The new focus suggested a quick fix and the stock price jumped roughly $2/share to $11.04 or 22% after the announcement.
The outlook was a little brighter for investors who had their sights set on some type of merger or acquisition. After all, Blackberry is still a leader in secure messaging and have acquired over 5,000 patents. Most long-term shareholders were of the viewpoint that the company was severely undervalued at current prices, and that the easiest way to realize that value would be through some type of sale or breakup. Individual retail investors weren’t the only ones riding this train of thought. Blackberry’s biggest shareholder – institutional investor Fairfax Financial Holdings Limited - had recently increased their total stake of Blackberry to 10% (50 million shares approx.). Fairfax’s CEO, Prem Watsa, who is widely considered Canada’s version of Warren Buffett, paid an average cost per of $17 per Blackberry share and was quoted in April of this year stating that the fair value of the company and all of its assets is around $40 a share. It stands to reason that when Watsa makes moves, people notice. Especially when he doubles down on an already large position in a specific business or company.
The path to equity glory was still far from guaranteed. With Blackberry’s impending quarterly earnings report due on Friday, September 27th for the second quarter of fiscal year 2014, the corporate brass decided to warn tepid investors of dire news by issuing a press release at approximately 3:03pm ET on Friday, September 20th – one week earlier than anticipated. Trading was halted on both the Toronto Stock Exchange and the Nasdaq until 3:35pm ET. During this trading respite, rumors lit up Twitter feeds about a potential bid for the company. Unfortunately, the news was of a much different variety. Blackberry would warn of an imminent layoff of 4,500 employees in Waterloo, Ontario and of a $935 million inventory write-down due to horrible sell-through rates of the all touchscreen BB Z10. When stock resumed trading 32 minutes later, the value of the company immediately tanked 23% to around $8.80/share, erasing all gains garnered from the “strategic alternative” news a month prior.
Fast forward to the morning of Monday September 23, and this is where it gets a little murky, Blackberry’s board of directors entered into a letter of intent with Fairfax Financial that would allow Prem Watsa and his holdings company to take the smartphone maker private, upon due diligence, for $9 a share.
Wait, $9 a share? Wasn’t it just worth north of $11 a share before the company decided to release ghastly earnings information a week early? If the board has the shareholders best interest in mind, I can’t honestly say I understand the strategy.
A lot of accusations have been flying around regarding fiduciary obligations the last year, I guess that could explain the handful of class-action law suits against the once dominant titan of tech in the north.
In the end, the open letter below may be Blackberry’s final mea culpa after years of obtuse vision and complete ignorance.
“There will never be a Blackberry with an MP3 player or camera.” – Mike Lazaridis (2005) - Founder and former CEO of RIM
To our valued customers, partners and fans:
You’ve no doubt seen the headlines about BlackBerry®. You’re probably wondering what they mean for you as one of the tens of millions of users who count on BlackBerry every single day.
We have one important message for you:
You can continue to count on BlackBerry.
How do we know? We have substantial cash on hand and a balance sheet that is debt free. We are restructuring with a goal to cut our expenses by 50 percent in order to run a very efficient, customer-oriented organization.
These are no doubt challenging times for us and we don’t underestimate the situation or ignore the challenges we are facing. We are making the difficult changes necessary to strengthen BlackBerry.
One thing we will never change is our commitment to those of you who helped build BlackBerry into the most trusted tool for the world’s business professional.
And speaking of those dramatic headlines, it’s important that we set the record straight on a few things.
Best in Class Productivity Tool
We have completely revamped our device portfolio this year with the launch of BlackBerry® 10. We have four BlackBerry 10 devices – two all touch and two hybrid (touch and QWERTY) – and all are running the third update of our new platform. If what you care about most is getting things done – taking care of your business — we have the best range of devices for you. And we continue to offer the best mobile typing experience – no ifs, ands or buts about it.
Best in Class Security
Governments all over the world, global corporations and businesses that simply cannot compromise on security choose and trust BlackBerry. Security is our heritage, and the industry recognizes that BlackBerry is the most secure when it comes to the device, server and, of course, our global data network. Have no doubt that you can continue to trust us to keep your communication safe and private.
Best in Class Enterprise Mobility Management
We changed with the market, embracing BYOD because we understand that as iOS and Android™ devices become common in the workplace, businesses still need to manage all of these different platforms seamlessly and securely.
This is not a trivial task. While there are a number of startup companies that make bold claims, BlackBerry has more software engineers and the most resources dedicated to developing the most innovative solutions to address this complex challenge.
And our customers know it. Over the past quarter, our BlackBerry® Enterprise Service 10 server base grew from 19,000 to more than 25,000. Corporate clients are committed to deploying and testing the latest enterprise technology from BlackBerry. We are committed to evolving with our customers. That will never change.
Best in Class Mobile Social Network
We are bringing the most engaging mobile messaging platform to all, with our BBM™ launch for Android™ and iPhone. There are already around six million customers pre-registered to be notified of our roll out. This number is growing every day, and speaks to the tremendous opportunity we have to expand BBM beyond BlackBerry® smartphones to make it the world’s largest mobile social network.
Yes, there is a lot of competition out there and we know that BlackBerry is not for everyone. That’s OK. You have always known that BlackBerry is different, that BlackBerry can set you apart. Countless world-changing decisions have been finalized, deals closed and critical communications made via BlackBerry. And for many of you that created a bond, a connection that goes back more than a decade.
We believe in BlackBerry – our people, our technology and our ability to adapt. More importantly, we believe in you. We focus every day on what it takes to make sure that you can take care of business.
You trust your BlackBerry to deliver your most important messages, so trust us when we deliver one of our own: You can continue to count on us.
The BlackBerry Team