NEW YORK (Reuters) - BlackBerry Ltd is abandoning a plan to sell itself and instead will replace its chief executive officer and raise about $1 billion from institutional investors, including its largest shareholder, the smartphone maker said on Monday.
Shares of BlackBerry dropped 19 percent to $6.33 in premarket trading. The company will raise the money with a private placement of convertible debentures.
BlackBerry's largest shareholder, Fairfax Financial Holdings Ltd, will take up $250 million of the debentures.
Fairfax announced a tentative $9-a-share offer for the Waterloo, Ontario-based company in late September. But Reuters said on Friday that Fairfax was struggling to finance the $4.7 billion bid.
The following are reactions from analysts and investors:
JACK GOLD, ANALYST, J.GOLD ASSOCIATES IN NORTHBOROUGH, MASSACHUSETTS
"Although BB has enough cash to run its business for some time, given all of the cuts in operations expense it has been making, this investment none the less gives it more breathing room. It also gives it a higher valuation should other companies wish to acquire it. My take is that Fairfax is hedging its bets here. If BlackBerry can turn around, the acquisition of 15% of the stock will bring it a good return Further, if the company is acquired the investment group has essentially valued it at a price where it can also get a good return. It wins either way."
"The new management brought in to right the ship will have both a mandate to do so (with a proven track record) as well as more breathing room (with the increased cash reserve). I'd expect to see some significant redirections at BlackBerry over the next 6-12 months as the new management takes hold and new business priorities and directions emerge. John Chen is a non-nonsense CEO who will hold people accountable, and will bring either new growth to the company or position the company to be acquired at a higher premium than it can currently demand. I see this situation as a long term positive for BlackBerry."
GAVIN GRAHAM, CHIEF STRATEGY OFFICER AT INTEGRIS PENSION MANAGEMENT CORP IN TORONTO
"That's extremely disappointing for BlackBerry. It's difficult to see them not being bought by somebody, but obviously not at this price, and that's what the market is saying with the collapse in the share price. Very disappointing all around."
"It might be independent for the next year to 18 months longest, given how rapidly the business is eroding."
"The fact that Fairfax couldn't persuade other people is an indication that other investors take a more pessimistic view of the value in BlackBerry."
JAMES CORDWELL, ANALYST AT ATLANTIC EQUITIES IN LONDON
"It looks like it leaves them in an uncertain position. Their current market position was very challenging, and I don't think this changes that."
"The change of leadership is quite surprising to me. I hadn't expected anything like that."
"The direction BlackBerry is heading in is increasingly unclear, and all paths are quite challenging."
"As the major investor he (Prem Watsa) obviously wants to have greater control over the direction of the company."
"There had been a hope that some form of full transaction would be completed, the fact that that hasn't been fully completed is unlikely to provide any reassurance."
"From an external perspective, fully appreciating what value might lurk within BlackBerry is very difficult. But if this due diligence process has resulted in people not being convinced that there's sufficient value that will be viewed quite negatively."
(Reporting By John Tilak and Alastair Sharp)