BlackBerry CEO John Chen is hopeful that the company will still close its massive patent sale with buyer Catapult IP Innovations.
However, on a Thursday earnings call about Blackberry’s latest quarterly results he added that, now that the deal’s exclusivity period has expired, he’s responding to calls from other parties expressing interest in the 38,000 patents.
“I am not actively looking,” Chen said. “I want to make sure that the shareholders know that we are not just stuck with one option. But we do expect to see - and we would like to see - the previously announced deal with Catapult happen. But what we are basically saying is we have been getting calls, and we are now responding to the calls, because the exclusivity has expired.”
BlackBerry announced early in June that Catapult had not met financing conditions for the deal to go through and that, as a result, it was opening the patents up to other bidders once more.
Catapult, led by NPE operator York Eggleston IV, had previously agreed to pay $600 million for the portfolio of social media and messaging, enterprise security, enterprise collaboration and consumer voice and security technologies.
The buyer was supposed to provide $450 million up front, followed by instalment payments. When it missed its first deadline, BlackBerry had a right to terminate the sale. That did not happen; instead the company announced its willingness to entertain other offers while allowing Catapult more time to find the funds it required.
IAM understands that the Catapult bid was by far the highest that BlackBerry received for the portfolio, while the Canadian government also showed a strong interest in the sale. It demanded that there be a significant local element to the buying consortium for regulatory sign-off to be given. Presumably, a similar standard would be applied to any new buyer.
The challenge for Chen and his team if the Catapult sale does not happen, therefore, is not only to get a similar amount from someone else, but also to ensure that Canadian entities are a meaningful element within the acquiring party. Alternatives to this might include breaking up the portfolio and selling it off in bits and pieces, or abandoning the process and rebuilding the licensing operation internally.
None of these look particularly attractive propositions for a company that is in the process of reinventing itself.
BlackBerry’s royalty revenues have been minimal as it worked through the sales process and paused licensing activities. For the company’s 2022 fiscal year, which ended 28 February, it earned $63 million from licensing, a 77% decrease from the $272 million generated in its 2021 fiscal year.
The slide has continued in the first quarter of its 2023 fiscal year: BlackBerry garnered just $4 million in licensing revenue and, with costs of $2 million, it realised just a 50% margin. In the first quarter of its 2022 fiscal year, Blackberry generated over $20 million in royalties.
Quarter-by-quarter declines in BlackBerry’s licensing revenue
Source: BlackBerry financial statements. Graphic: Angela Morris/IAM
One analyst asked during the earnings call whether BlackBerry will relaunch its licensing business if the patent sale falls through.
Chen replied:
“I believe for simplicity of our company’s story and our focus we should find a buyer. I believe we will find a buyer, but we will not shy away from monetising. We do have our team on standby and ready. But my first priority is to secure a buyer and there have been other people that have approached us. But I still believe that Catapult will get it done.”
More details about Chen’s feelings on the patent sale emerged on 22 June during the company’s annual shareholders’ meeting. The moderator of the presentation noted that three questions had been submitted relating to the sale.
“It’s been a long journey; however, I still believe we are doing the right thing for the company,” Chen told shareholders. He reiterated that there’s a “high probability” that Catapult will still buy the assets but declined to give a timeframe.
“It has been wrong a few times,” he noted.
Another shareholder asked how much BlackBerry was depending on the patent sale to realise plans to invest significantly in its newer business lines in Internet of Things and cybersecurity.
While acknowledging that the company did plan to use the patent sale revenue for such investments, Chen added that BlackBerry does not have a cash problem and has been projecting a break-even and cash-positive position in the next couple of years. BlackBerry will still invest in IoT and cybersecurity, though it may take longer without the patent sale.
“There is no real critical dependency on the patent sale, but it will be nice to put it behind us and have a war chest much bigger than we would need,” Chen stated.
But until there is a sale, those patents are sitting on BlackBerry’s ledger. The Catapult deal not only represented an opportunity to generate a substantial sum of money but also meant getting a significant cost, in terms of maintenance fees, off the balance sheet. While they remain in the company’s possession, though, decisions about whether to renew them must be made and budgeted for.
It’s no surprise that Chen would seek to paint a positive picture for shareholders and the markets. However, behind the scenes it’s likely that the failure to divest the portfolio is causing at least a degree of angst. That, of course, could end up providing an interesting opportunity for Eggleston and his backers to think again about the price they were offering. One thing seems pretty certain: given all that has happened, no-one else in the market is going to come close to the original $600 million that Catapult bid.