Joel R. Glucksman
Partner
201-896-7095 jglucksman@sh-law.comFirm Insights
Is Chapter 11 Bankruptcy an Option for Blackberry?
Author: Joel R. Glucksman
Date: October 10, 2013
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Blackberry Ltd. has fallen on difficult times, and if its ongoing bid to find a buyer to take the company private fails, some analysts speculate that the company may be forced to reorganize under Chapter 11 of the bankruptcy law.
Currently, the smartphone maker is negotiating a potential deal with Canadian insurance and investment company Fairfax Financial Holdings, which has made a $4.7 billion bid for Blackberry. Fairfax currently owns roughly 10 percent of Blackberry’s common shares. However, there is some skepticism as to whether Fairfax will be able to close the deal. The investment firm submitted a letter of intent to acquire the company, but has yet to line up the necessary financing to make the purchase.
Blackberry’s patents and licenses are currently valued at roughly $2.8 billion, leaving Fairfax to borrow roughly $2 billion to fund the buyout, Bloomberg reports.
Blackberry has been on the decline for several years, particularly as it failed to introduce new innovations or features at the same time that the iPhone was rising in popularity. The company’s cash balance plummeted $500 million to $2.6 billion last quarter, and the company is expected to pose a quarterly loss of nearly $1 billion during the fourth quarter of this year. In addition, the smartphone maker said it planned to lay off roughly 40 percent of its workforce, or 4,500 people.
The company’s weakened financial position has caused its credit profile to mirror that of a junk-rated company, Bloomberg notes. Marc Gross, a financial manager at RS Investments, told the news source that investors are only likely to purchase debt if it’s backed by Blackberry’s patents – currently its most lucrative assets – and even this scenario may depend on how much they could recover should the company seek bankruptcy protection.
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