An Open Letter to Carl Icahn and Starboard Value on Blackberry (BBRY)

Dear Mr. Icahn and Mr. Smith,

I am writing you to respectfully recommend an investment opportunity that I think well suits your respective investment styles.

The stock is Blackberry. As you know Blackberry has put itself on the block and has given a deadline to sell itself.

And as you know, Blackberry has an influential investor involved, Prem Watsa, an investor that owns shares at much higher prices (roughly $17/share).

Now, Mr. Watsa is in position to take this company private. And that creates opportunity. Given the deadline Blackberry has self-imposed, if/when Mr. Watsa makes a public bid to take Blackberry private, this will create a virtually risk-free trade for other influential investors to enter the trade.

You will have a floor, in Watsa’s bid, and the power to influence shareholders to force that bid higher.
Moreover, as the November date approaches, the opportunity for a bidding war grows. You may find yourself owning shares in a company with an implicit floor, while composing a bidding war.

Are there challenges associated with Canada’s takeover laws. Yes. Will that mean one of the world’s best technology providers in the cell phone/mobile computing space quietly goes away for book value? Unlikely.

Mr. Smith, I recall you 2011 investment in AOL. AOL was considered a rapidly dying business. It was hated by and poorly understood by analysts. Sound familiar. But it had a fantastic balance sheet, and valuable patents and technologies. Your firm acquired a huge position in AOL in 2011, and instantly forced the company to sell its valuable patents and technology. In doing this you created instant value for the shareholders. AOL’s stock price went from a low of $10 in August of 2011 to over $40 in April of 2013.

Blackberry is a stock with $5.50 in cash per share with zero debt. The company, according to a consensus of analysts has anywhere from $8 to $10 worth of patents and technology. Regardless of the synergistic value creation that those patents and technology could mean for another big mobile player (Apple, Samsung …) Blackberry is still selling for a nice discount to its break-up value.

So I see three potential outcomes for Blackberry, with your involvement:

Scenario 1 – Mr. Watsa tries to take the company private. That supplies a floor from which to negotiate from on behalf of shareholders. The result: Virtually no risk and a potential premium to Watsa’s bid won for shareholders.

Scenario 2 – With an approaching deadline and a bid on the table from Prem Watsa, a rapidly evolving bidding war could ensue for the coveted Blackberry technology.

Scenario 3 – Force the sale of Blackberry most valuable assets and then force management to buy back stock or pay out a one-time special dividend to its shareholders.

Bottom line: Blackberry offers a very attractive asymmetric risk/return profile. And the stock is in need of at least one influential investor to demand the highest value for shareholders in a Blackberry sale.

On a parting note, comparing a Blackberry outcome to the AOL outcome (where Starboard Value forced the company to sell patents and change its strategy), Blackberry could be worth anywhere from $21 to $25 a share. Perhaps most intriguing, given the potential scenarios and the approaching November deadline, a large premium in Blackberry shares could come in just a few short months.

Will Meade
President of The Billionaires Portfolio