Lenovo bid for BlackBerry could collapse under pressure

Lenovo is considering bidding for struggling smartphone maker BlackBerry, but the devil is in the details

PUBLISHED : Friday, 18 October, 2013, 3:45pm
UPDATED : Friday, 18 October, 2013, 3:45pm

Lenovo is wading into the BlackBerry jam. The Chinese technology group has gained access to the books of the Canadian smartphone seller, which is already considering a US$4.7 billion approach from shareholder Fairfax Financial Holdings. If it chose to bid, Lenovo would have to do better than the current offer of US$9 per share, and overcome more obstacles.

The foundering BlackBerry has three main assets: Patents, which Lenovo might want; handsets, which it probably doesn’t; and enterprise services, which it almost certainly can’t have.

The patents might help Lenovo expand its smartphone division in the West, where it makes just 5 per cent of its sales, according to Gartner. BlackBerry’s US$2 billion or so portfolio of patents, as valued by analysts, won’t attract users directly, but they would protect Lenovo from costly infringement suits.

BlackBerry’s handsets, which the market values at near zero, may be worth slightly more than that to Lenovo. It could co-opt the fixed keyboards for diehard users. Most sensible might be to rename its own decent mid-range phones with BlackBerry’s brand, and push them to the Canadian group’s existing vendors.

Security is the stickiest point. Lenovo isn’t a state-owned company, but Blackberry’s popularity among the business and political elite – including President Obama – would be unlikely to survive a Chinese takeover. Regulators may even demand that it offload BlackBerry’s enterprise business, along with patents that go with it, to another buyer like Cisco, Oracle or IBM.

That ensures things won’t be simple. Any proposal would have to be discounted for the difficulty and complexity of a break-up – and for inevitable political meddling. Canada, the United States and China would all want time to deliberate. If investors felt a Lenovo offer had, say, a 75 per cent probability of completion, the Chinese company would need to offer US$12 per share to get a hearing.

That may not stop Lenovo trying. It has around US$3 billion in cash, net of its negligible borrowings, according to Eikon data. And it’s no stranger to political challenges, having bought IBM’s personal computer business in 2005. But a bid would be finely balanced, and like BlackBerry itself, offer little juice.

Lenovo has signed a non-disclosure deal to examine BlackBerry’s books, according to a source cited by Reuters on October 18. The Canadian smartphone maker has been exploring options that could include a sale, and has signed a letter of intent to consider a US$9-a-share offer from its biggest shareholder, Fairfax Financial Holdings, valuing the whole company at US$4.7 billion.

Lenovo is the world’s biggest manufacturer of personal computers, according to Gartner. It shipped 14.2 million units in the third quarter of this year, equivalent to 17.6 per cent of the global total, compared with Hewlett-Packard’s 17.1 per cent. Lenovo had a 4.7 per cent share of China’s smartphone market at the end of June, selling 10.6 million phones to end users in the second quarter according to Gartner, versus BlackBerry’s reported global sales of 5.9 million.

BlackBerry reported a US$965 million quarterly loss from continuing operations on September 27, mostly attributable to writing down its inventories and cancelling some commitments to take goods from suppliers. Chief Executive Thorsten Heins described himself as “very disappointed”.