Struggling Canadian-smartphone maker, BlackBerry Ltd (BBRY), has announced it will raise around $605 million by selling convertible debentures to the company’s second largest shareholder, Fairfax Financial Holdings Ltd (FFH.PR.M) and other investors.
Struggling Smartphone Maker Shifts Production Focus
If all of BlackBerry’s newly issued debt is converted into stock, the deal will represent approximately 11.57% of the company’s outstanding shares, according to Fortune. The newly issued debt will have a coupon of 3.75% due in November of 2020. Fairfax, led by the well-known contrarian investor Prem Watsa, currently holds an 8.9% ownership stake in the troubled company. On September 2, BlackBerry will also redeem about $1.25 billion worth of outstanding debentures with a coupon of 6%, reports Reuters.
Once a leader in the now faltering smartphone industry, BlackBerry currently holds a 0.1% of the global market share, according to Q2 2016 Statista data. In efforts to regain momentum, BlackBerry has shifted efforts away from smartphones to software production.
However, against investor judgment, the company has continued to focus on building out its money-losing handset businesses, while closing down production of its Classic model altogether. (To learn more, read: BlackBerry Classic Will Soon Cease to Exist.)
This July, Blackberry released an Android-based handset which integrates Alphabet Inc.’s (GOOG) software and broad app catalog with its security and productivity features at a lower cost. While management remains optimistic about handset earnings potential, analysts have urged BlackBerry to sell the operation or shut down the unit completely.
The Bottom Line
BlackBerry recently announced it will sell $605 million in convertible debentures to its second-largest shareholder, Fairfax Financial Holdings. Amid a shrinking hold on an already weak smartphone market, Blackberry has shifted focus to software production. However, CEO John Chen is confident that BlackBerry’s newly trimmed down handset business will help the struggling company meet September targets and stay profitable, although investors are wary of such optimistic prospects.
[Source:-Investopedia]
