If BlackBerry Ltd. Wants to Increase the Share Price, it’ll Make This Move

BlackBerry Ltd.’s (TSX:BB)(NASDAQ:BBRY) management needs to show shareholders they’re serious about propping up the share price.

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Recently, BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) CEO John Chen joined Amber Kanwar on Business News Network to discuss the company’s lackluster quarterly results.

Most of the interview was pretty predictable. Chen expressed disappointment that earnings weren’t up to expectations, and vowed the company would improve results in the future. He stressed that the company was only two quarters away from consistent profitability, and expressed hope that sales of the company’s new Android-powered phone would boost revenue in the future.

Chen also talked about the company’s acquisition of Good Technologies, which was purchased for US$425 million. It’s currently not profitable, but management expects it to be by the end of fiscal 2016, which is just two quarters away.

Finally, Chen weighed in on the possibility of the company selling itself. He all but said the company was not for sale, and called a potential purchase price of $15 per share “too low”, even though shares are languishing at just over $8 each on the Toronto Stock Exchange.

For his entire tenure as CEO, Chen has been telling investors to be patient. And while he’s certainly made some positive moves, it’s easy to see why investors are starting to get a little antsy. Revenues are consistently falling because of low handset sales, with no end in sight. The most recent quarter saw revenue that was nearly 50% lower than the comparable quarter last year.

With the price of shares continuing to be weak, it’s obvious that BlackBerry management needs to do something to prop up the share price. And I have just the idea.

John Chen, if you’re reading this, get out your pen and paper.

It’s time for a share buyback

In the most recent quarter, BlackBerry did something right. The company repurchased six million shares, which cost it a total of US$47 million.

That’s a good start.

But if John Chen really thinks the company is undervalued, why isn’t the company being more aggressive in buying back shares? If $15 per share is too low of a price to sell the company, then why isn’t $8 per share a terrific opportunity for BlackBerry to buy back shares?

It isn’t like the company is hurting for cash. Including the debt (which is mostly convertible debentures), the company had a net of US$2.1 billion in cash at the end of the most recent quarter. Take off the US$675 million the company recently spent on two acquisitions, and there’s still more than $1.4 billion in net cash left in the kitty.

Under Toronto Stock Exchange rules, BlackBerry can’t buy back more than 10% of the company’s average daily trading volume in a regular buyback. Still, that means the company can buy back nearly 200,000 shares per day. Assuming 60 trading days in a quarter, the company could easily double the number of shares it buys back.

Or BlackBerry could do something many other companies have done before. It could announce a dutch auction buyback for something like 50 million shares at $8.50 or $9 per share.

This would accomplish two things. It would get the share buyback out of the way quickly, and it would immediately boost the bottom line by about 10%. It would also likely usher in a higher share price.

If management truly believes a $15 takeover offer was too low, then buying back a boatload of shares at today’s level makes all sorts of sense. It has the cash, losses have largely been erased, and the share price could desperately use a boost. A big buyback helps management with results going forward and rewards shareholders.

It’s time for BlackBerry management to step up and do something to help shareholders. It’s that simple.

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.

Fool contributor Nelson Smith owns shares of BlackBerry.

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