If I had a nickel for every rumour I’ve heard about BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) being acquired by another company, I’d have a pretty heavy piggy bank.
Over the last two years, it seems like every major tech company around the world was rumoured to be mulling a bid for the beleaguered Canadian smartphone maker. Everyone from Samsung to Apple to Amazon were supposedly in the running for the company, yet only one official bid emerged—and it was from Prem Watsa of Fairfax Financial, a value investor who was just attempting to seize an opportunity to buy a temporarily cheap company. Ultimately Watsa’s bid was unsuccessful as well, fizzling when he couldn’t get the institutional support needed.
Now that new CEO John Chen has pulled the company back from the brink of bankruptcy, the chatter around BlackBerry’s potential suitors has slowed somewhat, but it still hasn’t stopped. Every few weeks, some new rumour makes the rounds, causing the share price to pop up a few percent on the news, only to fall again in a couple of days as the rumour gets debunked.
While this chatter is pretty entertaining, it’s not the best thing for your portfolio. So, let me put all the BlackBerry acquisition rumours to bed, starting now.
Just not happening
There’s one simple reason why I’m confident in saying a BlackBerry takeover isn’t happening. The Canadian government won’t allow it.
The government has a history of nixing deals that it doesn’t like. In 2010 BHP Billiton had an offer on the table to buy Potash Corp. for US$38.6 billion. Even though there’s no current foreign restriction on ownership of Potash shares, and the company has its head office in Chicago, the feds still denied the deal.
Other, lesser-known deals have been blocked, too. Telus has tried to take over Mobilicity twice now, and has been blocked each time. And the government has made it known that any large takeovers in the oil sands would be pretty difficult to get approved, after allowing Nexen to be taken over.
BlackBerry is still considered one of Canada’s tech darlings. Sure, the handset part of the company is struggling, but the software and security parts are doing quite well. BlackBerry makes the software that powers many of today’s connected devices, a market that’s projected to grow by leaps and bounds over the next five years.
Like with the blocked Potash deal, there’s an argument to be made that the government will want to keep BlackBerry as a Canadian company because it owns important assets. Even the prestige of having BlackBerry be Canadian is important.
Is it still a buy?
Just because there’s not much hope of a takeover doesn’t mean investors should sell the stock. There are still plenty of reasons to be bullish on BlackBerry.
Let’s start with the balance sheet, which is in great shape. The company is sitting on nearly US$3 billion in cash, and just US$1.7 billion in debt, most of which is convertible to equity. And thanks to Chen’s cost-cutting efforts, the most recent quarter was actually cash flow positive.
Plus, there’s all that potential in the software business. According to the IDC, the market for the Internet of Things will reach $1.7 trillion by 2020, with many of the newly connected devices powered by BlackBerry software. BlackBerry already owns a dominant position in making software for car entertainment systems.
And then there’s the security market. BlackBerry has entered into agreements with other smartphone makers to assist them on security, nicely leveraging its expertise. There’s little doubt that bad guys are going to keep trying to exploit weaknesses in our devices.
And finally, there’s still value in the company’s patent portfolio, which analysts have estimated to be worth as much as $3 billion. Currently, management is in no hurry to sell its intellectual property, preferring to look for ways to monetize the assets.
There are plenty of reasons why an investor might choose to buy BlackBerry shares. A takeover shouldn’t be one of them. Investors should focus more on the fundamentals—which actually look quite good—and less on rumours.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.