BlackBerry CEO John Chen has confirmed that the company has agreed a price for the portfolio of mobile device, messaging and wireless networking technology patents that it has been in negotiations to sell over the last few months, and that he believes there is an 80% chance of the deal being done by the end of the year. However, he also expressed frustration at how long it is taking to get the transaction over the line. “I fully expect to finish this this quarter. But I'm tired of waiting. I know a lot of our investors are too,” Chen stated.
Speaking on a call to discuss BlackBerry’s second quarter financial results, Chen cited the complexity of the deal structure and the size of the portfolio as reasons for the hold-up but stated that all due diligence has now been completed. “Should it not conclude this quarter, we have other options, including additional interested parties,” he said.
Chen noted during the call that the patents on which the deal is focused are fresh with a good average remaining lifespan. BlackBerry should monetise these assets on a one-time basis and use the proceeds to invest in other business units that have high growth potential, he stated. These include the Internet of Things technologies – which brought in $40 million revenue with 83% gross margin during the quarter – and IVY, a secure vehicle-based payments product that the company is delivering through a partnership with Car IQ.
Last month, IAM revealed that a price for the portfolio had been agreed with the buying party. “I can't comment on the ongoing negotiation, because it doesn't help me or whoever. I would say to you that we have settled on the price. And that I would agree -- I would confirm,” Chen stated in an answer to a question about reports “in the trade press” from analyst Todd Coupland of CIBC.
With negotiations ongoing, the BlackBerry licensing operation is currently in a holding pattern. “We will continue to eliminate monetisation activities for the remaining of the fiscal year, therefore, revenue for both Q3 and Q4 is expected to be similar to Q2, which is at $10 million per quarter,” Chen stated. The BlackBerry accounts show that the company made $272 million from licensing in FY2021 on an 89% margin, so if Chen’s forecast is proved correct that will come down to something like $60 million for this financial year.
This highlights an under-reported aspect of the deal under discussion – it is not a straight patent sale, but the sale of a licensing business. This is one reason why it is taking such a long time: there are a whole host of issues to factor into the process that go beyond the transfer of a portfolio from one entity to another.
IAM has also obtained a little more detail about the transaction’s moving parts. It has emerged that there is, in fact, a single buy-side entity, but that the transaction is being financed from a variety of sources in multiple locations using a mix of debt and equity: the buyer is putting up some of its own cash, but others are supplying the balance. This is another reason why it is all taking so long. We understand that the buyer was one of several interested in the acquisition but that it was the one that offered the most money.
Although, there is no indication as to the identity of the buyer, the fact that it is purchasing a licensing business rather than just a portfolio, and that it is looking to finance the deal through multiple sources, may give some indication of the kind of entity involved. Clearly, the hope at BlackBerry is that we will find out soon enough who it is. However, if things drag on until Christmas and towards the company’s year-end in March 2022, priorities and expectations may begin to change.