Just Say 'No' to BlackBerry

On Monday we learned that BlackBerry (BBRY) management has formed a board committee to evaluate alternatives. Shares jumped on the news and closed the session at $10.78 for a better-than-10% move.

It's no secret the smartphone business has been getting challenging. It's going to be a battle, even as a number of players double down -- among them Google's (GOOG) Motorola Mobility unit, with its new Moto X model. As tends to be the case in any battle, there are winners and losers here -- and BlackBerry seems poised to be more victim than victor, given the combination of market-share losses and a growing number of defections. 

In other words, it seem the Blackberry board has finally come to the conclusion at which investors had already arrived some time ago. Even though the company was once the smartphone leader by market share, it has not been king for some time now. 

The next question to consider goes something like this: Just because Blackberry is open to selling itself, does that mean that someone would actually want to buy it? If the answer is "yes," then a case could be made for those investors with the right risk profile to have a go at the shares. 

Now, according to the latest data from Comscore, Blackberry's market share fell to 4.4% of the U.S. smartphone market in June, down from 5.2% in March. This would suggest that its newer products are not cutting it against the likes of Samsung, Apple (AAPL), Huawei. While I'm not familiar with every private-equity firm, it's hard to imagine that one would want to step in, given falling market share and bottom-line losses. That said, I'm sure there are a few folks figuring out how much the hardware and software businesses are worth as they consider using BlackBerry's balance sheet against it.

Over the years that I have been interfacing with public companies, several comments have stuck in my mind. One was the answer from a chief financial officer when I asked him why his company wouldn't buy a certain other firm, if only for its assets. His response was, "Why should I buy now when their business is challenged, if not falling apart? I can pick up the assets and the intellectual property later at a much better valuation." Granted, with $2.8 billion in net cash -- or roughly $5.50 per share -- Blackberry has ample staying power near-term. 

In terms of potential strategic buyers, the one that jumps out at me is Samsung. While it is the smartphone market-share leader, and a key user of Google's Android mobile operating system, it runs the risk of being too reliant on Google at a time when Motorola Mobility is looking to jump-start its smartphone position. It's never good to be in competition with a key supplier of yours. A great example of that was in the mobile virtual network operators (MVNOs) that relied on Sprint-Nextel (S). 

Samsung is already working on its own operating system, and buying BlackBerry would move it that much further ahead. With an eye toward the connected home and even the connected car, BlackBerry's BB10 -- combined with Samsung's position in home electronics, appliances and more -- could make for an interesting combination. But even that onion has a few more layers. Would Samsung want the hardware and software business? What is each one worth? Given the share loss and likelihood for more ahead, my gut says the hardware business is not worth much in a takeout scenario. Is BB10 worth $1 billion or more?

Gaming it out does make for interesting fodder. However, for investors seeking a more predictable outcome, my advice would be to fish in other waters and avoid most of the smartphone vendors. That includes Blackberry shares. After all, with new products from Apple, HTC, Samsung and others set to hit the shelves soon, the smartphone battle is on the cusp of heating up even further in the coming weeks and months.

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