It's coming, Blackberry assets are about to stomp all over Google and Apple, especially if these two just sit by as pedestrians. Blackberry, in its death throws, may strike a pretty hard blow against it's two American adversaries that brought it down. Who cares about Blackberry? Nearly no one, right? Just look at the lack of activity on tech blogs about Blackberry. Look at the lowly number of comments. But wait, Blackberry may just get the last laugh against the two companies that drove them out of business and Apple and Google are going to have to make a decision.

Troubled handset maker Blackberry today was sold for $4.7 billion to its largest investor, Fairfax Holdings. Fairfax is an insurance company, they know nothing about running a mobile tech company. Fairfax intends to finance its purchase price, which amounts to $8.99 per share, through a conduit loan provided by Bank of America's Merrill Lynch, accounts receivable and patents will serve as collateral.

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I've done these types of deals before as an investment banker. Blackberry's fellow Canuck corporation's goal is clear to me. As of the last quarter end, Blackberry had $2.6 billion in cash. Fairfax will use those funds to partially finance it's buyout of Blackberry and secure conduit financing for $2.1 billion. This loan will be sold into note chunks to various investors, perhaps in a fund which will be sold to not only institutional investors, but to retail investors as well, in blocks ranging from $1,000 to whatever the market will bear.

Here is where it get's interesting. Fairfax will attempt to sell off the enterprise division to a buyer such as HP, Oracle or another (I'm not an expert at whom in the market would be interested in, I'm only an expert in structured finance). Fairfax will determine, through its due diligence scheduled to end by November 4th, if it is more profitable to license or to sell. If licensing will bring a larger return than 20% on their investment, they will continue licensing the patents. If however, they determine that selling the patents brings a larger return than 20%, which they will, then Fairfax will sell the patents either to a consortium of buyers like what occurred with the Nortel patents, or they will sell them to a patent troll firm, such as Intellectual Ventures. Analysts at Scotiabank have estimated that Blackberry's patent portfolio to be worth $2.25 billion, and this is a conservative liquidation value based on the bankrupt Nortel sell. Nortel's patents were sold for $4.5 billion and was purchased by Apple, Microsoft and Blackberry. Scotiabank explained their valuation thusly:

We have been suggesting a value of roughly $2.25B based on a discount to what was paid for the Nortel patents, given the sale of those patents occurred at a particularly opportune time. Again, those patents sold for roughly $1M each and the Motorola patents sold for roughly $735K. Given that BlackBerry maintains roughly 5,136 patents, to get to our $2.25B number the patents would have to sell for $438K each or a 40% discount to the Motorola patents and an almost 60% discount to the Nortel patents.

I suspect that we may see a counter offer to Fairfax's, just for the patents. As I said, if Fairfax can reach a 20% return or more, which I believe they can easily do just for the patents, they will sell them. What will be interesting is who will be the bidder? Apple? Microsoft? Google? or Intellectual Ventures? My guess is that those patents will be sold at a premium, not a discount as Scotiabank theorized because the big OEM's may not want Intellectual Ventures to get their greedy trolly little paws on them. The big winner here is Fairfax Holdings. Smart move Fairfax, well played sir. Blackberry employee's, sadly, will be out of a job fairly quickly. As a going concern, Blackberry will only survive as long as it takes to determine whether licensing or selling the patents is more profitable

Source: WSJ