The proposed BlackBerry patent sale to Catapult IP Innovations is still alive, despite the withdrawal of a major source of financing for the deal.
Sources claim that new capital providers have already been identified by Catapult lead York Eggleston to replace the syndicate led by Toronto-based Third Eye Capital, and that even if the $600 million transaction does fall through back-up options are available.
The Globe & Mail reported on Monday (29 August) that Third Eye – which had put together a group that IAM understands included top Canadian pension investor PSP – had pulled out of the transaction. It cited frustrations over the time it was taking to complete and the dangers of missing out on other investment opportunities.
The Third Eye Syndicate was due to provide $400 million of conditional debt to fund the transaction, with Eggleston having to find $90 million to secure the money. Under the terms of the patent sale, BlackBerry would receive a $450 million upfront payment from Catapult, with the outstanding amount due to be paid over five instalments beginning in three years’ time.
At the end of January, BlackBerry announced that it had reached agreement with Catapult for the sale of a portfolio of 38,000 legacy patents. This includes assets covering social media and messaging, enterprise security, enterprise collaboration and consumer voice and security technologies.
However, Catapult’s period of exclusivity ended when it failed to hit a May deadline for payment. Despite this, on an earnings call in June, BlackBerry’s CEO John Chen said he was not actively looking for alternative buyers and expressed confidence that the deal would still go ahead. But whether that remains the case now could well depend on the Canadian government.
Throughout the period in which BlackBerry had been looking for a buyer, as well as during the negotiation period before the Catapult deal was announced, all the noises coming out of Ottawa indicated that a strong Canadian element on the buy-side would be necessary for the transaction to get regulatory sign-off.
But IAM understands that the formal approval for the Catapult purchase did not contain a written provision to that effect. Whether that was by design or accidental omission – or because it was understood that both Third Eye and PSP were closely involved – is not known.
Canadian sources of financing for a deal of this kind, though, are unlikely to be plentiful. That makes it likely that Eggleston will have to look south of the 49th parallel for replacement cash. If that is the case, there is at least the potential that Canadian regulators will want to take another look.
Alternatively, it could be that, while preferring a strong Canadian element, Ottawa would not want to be seen to impose conditions on BlackBerry that would prevent it maximising the value of its IP or even not being able to monetise it through sale at all.
The $600 million that Catapult offered for the portfolio is the biggest that BlackBerry received, by far. However, IAM understand that there were two other viable bids, both of which involved nine-figure down payments, but that also involved BlackBerry agreeing to take a percentage of future revenues generated by the portfolio. At least one of those bidders is still interested in pursuing such a deal.
So, if the Catapult sale does not happen, there are other options for BlackBerry to consider.
On top of full portfolio offers, these also include a potential sale of portioned-out patent packages or even reviving the company’s internal licensing operation, which has been in something of a slumber for the last year or so.
None, though, are as good as the deal Eggleston has offered. This means that Chen and his board will doubtless be hoping this still comes through. But eight months since the deal was originally announced, they cannot wait forever. The pressure from expectant BlackBerry investors to deliver something will almost certainly see to that.