On Monday, shares of BlackBerry Ltd. (TSX: BB)(NASDAQ: BBRY) jumped more than 8%, closing at $11.63.
There were a few reasons for the surge. News came out on Friday that there’s a shortage of Passports, the company’s new mobile handset introduced to compete with new offerings from Apple and Samsung. Sure, the company did limit the number of Passports available, but a shortage is generally good news. It shows sales are brisk.
Additionally, the company got a boost when one of its competitors, IBM, came out with poor quarterly earnings results. Investors took that as a positive that BlackBerry was continuing to have success with its enterprise customers.
But by far the biggest factor causing the jump in the share price were rumours flying over the weekend that Lenovo was mulling over a bid for the company. The Chinese tech giant has long been rumored to be interested in BlackBerry, seeing it as an undervalued asset for seemingly years now. BlackBerry could also be interested in this, since China represents a huge market that it just can’t break into.
There’s a whole lot that makes sense here. But does that mean a merger will happen?
A great idea, but…
Bullish BlackBerry investors ran with the news, speculating that an offer price of US$15 per share could be in the works, with an eventual plan for Lenovo to pay $18. Shareholders should be happy with that amount, including billionaire Prem Watsa, who is the company’s largest shareholder.
There’s just one problem.
This isn’t the first time Lenovo has been linked to a BlackBerry takeover. In 2013, sources said that the company was ready to make a bid until the federal government came back with a short and stern rebuttal. Don’t bother to make a bid, because the feds would never let it happen. BlackBerry was too important to Canada to let it fall into foreign hands. Lenovo then seemingly switched gears, acquiring Motorola instead.
Besides, this wouldn’t be the first time the Conservative government has nixed a takeover offer. In 2010, it put a kibosh on an offer by BHP Billiton to acquire Potash Corporation. It’s rejected Telus‘ repeated efforts to buy Mobilicity. Other, lesser-profile deals have been shut down as well. It seems Ottawa is serious about keeping certain Canadian companies out of foreign hands.
There are two ways investors can look at this news. The optimistic view is that Lenovo has gone through the proper channels and given the feds any necessary reassurances that satisfy conditions opposing a BlackBerry takeover. Now that this due diligence is completed, the company is free to bid, hence the rumours.
It’s plausible, but I’d say the plan is a tad bit optimistic. A more likely scenario is a rumour or a comment by a senior Lenovo official that got taken out of context. It’s likely more wishful thinking than anything else. It just seems unlikely that the government would change its mind on something like this.
Still a buy?
That doesn’t mean that you shouldn’t pick up BlackBerry shares. The company has come a long way over the last year.
Recent results were essentially break even, after more than a year of big losses. The balance sheet is rock solid, and the company has done a nice job diversifying away from the traditional handset business. CEO John Chen has successfully cut costs, laid off thousands of employees, and made the company into a leaner, meaner enterprise. All of these are great steps, and should help ensure not only the company’s survival but also usher in a new era of prosperity not centered around mobile phones.
Those are the reasons why investors should buy BlackBerry. Investors should never buy a stock because they expect it to be taken over. If a takeover happens, investors should consider it a nice bonus — nothing more. Takeovers are really hard to predict. Focus on buying good companies instead.
