BlackBerry and Fairfax Complete $1B Financing for Troubled Smartphone maker, with advice from McCarthys, Shearman, Torys, Blakes, and Skadden

Little came out of Mike Lazaridis’s efforts when, in September 2013, he approached two US private equity firms, Blackstone Group and the Carlyle Group, about a possible offer for BlackBerry.

A sign is seen at the Blackberry campus in Waterloo

REUTERS/Mark Blinch/Files

The co-founder of the Waterloo tech giant, who stepped down as co-chief executive in 2011, was in preliminary talks with investors regarding a possible take-over of the troubled smartphone maker. A day earlier, on Friday, September 20, the company slashed 4,500 jobs – 40 per cent of its workforce of 11,500 at the time – and was expected to report losses of up to a billion dollars. Shares, predictably, plummeted $1.74 on that day to $9.08. In July, ComScore, a digital analytics site, reported that BlackBerry’s share of smartphone subscribers dropped from 5.1 in April to 4.3 per cent in July.

Two days after Lazaridis met with potential buyers, a potential lifeline came in the form of BlackBerry’s biggest shareholder: Fairfax Financial Holdings, an insurance company which owns about a 10 per cent stake in BlackBerry; Fairfax’s much-talked-about CEO, Prem Watsa, and a consortium of investors. The Toronto-based Fairfax offered US$9 cash for each share it didn’t already own, which valued the company at US$4.7 billion.

On that day, BlackBerry signed a letter of intent agreement in which Fairfax would acquire the company subject to due diligence. Due diligence was expected to be completed on November 4, 2013. During the period up to that date – the “diligence period” – BlackBerry was permitted to “solicit, receive, evaluate and potentially enter into negotiations with parties that offer alternative proposals” but, because it signed the letter of intent, would be subject to the standard break fee if it agreed to such an alternative proposal. On September 30, Bloomberg reported that BlackBerry was willing to pay 30 cents a share, or $157 million, in break fees for a tentative take-over offer.

Then, two days after the Fairfax offer, Fairfax was reported to be seeking US$1 billion from other investors to help fund the take-over. However, on November 4, Fairfax backed out of the offer – and with it came managerial changes that saw CEO Thorsten Heins ousted in favour of the company’s board appointed technology executive John Chen, who is now interim CEO and executive chairman. Stock fell 16.4 per cent to $6.50 in trading on the Nasdaq market in the US after the announcement. Instead of a take-over, Fairfax and a group of investors agreed to put $1 billion into the company to stimulate a turn-around.

On Wednesday, November 13, BlackBerry and Fairfax completed the $1-billion financing through a $1-billion private placement of convertible debentures. Canso Investment Counsel Ltd. of Richmond Hill contributed $300 million, while $250 million came from Fairfax. Investors have an “option to purchase up to an additional US$250 million principle amount of additional debentures within 30 days,” according to filings.

Representing their respective sides in this telecommunications drama is McCarthy Tétrault LLP (Canada) and Shearman & Sterling LLP (Canada and US) for Fairfax; Skadden, Arps, Slate, Meagher & Flom LLP (US), Torys LLP (Canada), and Blake, Cassels & Graydon LLP (Canada) for BlackBerry.

McCarthy Tétrault’s deal team was led by David Tennant, and included Ian Michael, Richard Higa, Gary Girvan, Jonathan Grant, Deandra Schubert, Danny Saposnik, Mark Firman, Tina Benson, Omar Soliman, Doug Cannon, Stefanie Morand, Alfred Macchione, Ian Bies, Oliver Borgers, Brenda Swick, Matthew Griffin and Kristina Bockarov.

The Shearman & Sterling team included Jason Lehner (Toronto/New York-capital markets), Scott Petepiece (New York-M&A), Jessica Delbaum (New York-antitrust), Alan Goudiss (New York-litigation), Joshua Thompson (New York-finance), Doreen Lilienfeld (New York-executive compensation and employee benefits) and Larry Crouch (Palo Alto-tax); Sean Skiffington (Toronto-M&A), Cody Wright (New York-M&A), Ethan Siller (Toronto-capital markets) and Kevin Roggow (Toronto-capital markets).

The Blakes team included Jeff Lloyd , John Wilkin, Tim Andison, Cheryl Slusarchuk and Eric Moncik (corporate and securities); Ron Richler (tax), Rich Turner, Joe Zed and Adrian Cochrane (corporate and securities).

Skadden’s team included Stephen Arcano, Neil Stronski, Richard Grossman and Christopher Barlow (all New York-M&A).

The Torys team is to be confirmed.

Ahmad Hathout

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