I'm melting

BlackBerry shares finally find bottom of sorts

BlackBerry shares have finally found a bottom of sorts. Major shareholder Fairfax Financial Holdings has made a $4.7-billion buyout offer for the beleaguered smartphone maker. That might be justified by cash plus the market value of its intellectual property. But a meltdown in demand for its devices makes the case for a successful turnaround a fragile one.

The company's value peaked at about $70 billion in 2007, the same year Apple launched the iPhone. Last week's news of a fresh $1-billion writedown was the latest in a long string of disappointments. The downward slide in BlackBerry's stock was only arrested when Fairfax, which holds a stake of about 10 per cent, said it was willing to buy it for $9 a share if consortium partners and financing come through - a price that values BlackBerry's operating business at close to zero.
 
It has $2.6 billion of cash on its books. The value of BlackBerry's portfolio of patents is more uncertain. Their worth relates to the cash flow a buyer could receive from licensing them out, or from the potential one-off value they might have to a buyer like Apple or Google. Research firm Paradigm Capital estimates they are worth $1.9 billion. Put the two sums together, and that's only just short of the offer on the table.

Meanwhile, BlackBerry plans to cut 40 per cent of its employees and focus on the enterprise and government markets. If that turns out to work and its business turns a profit again - something that might be easier to achieve out of the public eye, as backers of Michael Dell's buyout of his eponymous computer firm suggested - then Fairfax and its partners could make serious money.

But the risks are considerable. BlackBerry burnt about $500 million of cash in the past three months. Shutting its consumer business will reduce losses eventually, but may cost plenty in the short term. That could make it difficult for Fairfax to line up funding. And the once wide moat protecting the company's software and services business is drying up as companies switch to rival handsets and rip out BlackBerry's servers.

The buyer could also get cold feet. Fairfax does not owe a break fee if it walks. Prem Watsa, the founder of the $8 billion dollar insurance company, has been called Canada's Warren Buffett. Buying BlackBerry - a company in rapid decline because of a technological shift - doesn't seem like something the Sage of Omaha would do. The floor under BlackBerry may not be stable.