So BlackBerry has found itself a buyer.
But the $4.7 billion offer by Fairfax Financial Holdings, the Canadian insurance and investment company, to take the company private does not necessarily resolve the company’s problems. There is no guarantee that Fairfax will close the deal, and while its letter of intent includes a go-shop provision, it is unclear whether a rival suitor will surface.
Blackberry seems to have been in decline for what seems like forever, even though the product that started the erosion, the iPhone, dates only to 2007. The company announced on Friday that it expected to report a quarterly loss of nearly $1 billion and planned to lay off about 4,500 people, or 40 percent of its work force.
A new owner might be able to help. Of course, the new owner might also just want to extract maximum value on the way down. There is another option: It becomes natural to wonder whether BlackBerry might eventually seek to restructure under Chapter 11 or its Canadian counterpart, the Companies Creditors Arrangement Act, known as the C.C.A.A.
It’s a question I’m asked almost every week, but I almost always answer the same way: “no.†Or, at least, not anytime soon. The company has not given any indication that it is considering such a move, either.
The C.C.A.A. is the closest analog to Chapter 11 in Canada, but it differs in a few key respects. For one, the C.C.A.A. requires insolvency before filing. This contrasts with Chapter 11, which does not require insolvency to enter the process, although the debtor must be acting in “good faith.†As described by my Canadian colleagues, the C.C.A.A. is a bit vague about what precisely constitutes insolvency. BlackBerry’s balance sheet shows $13 billion in assets compared with $3.7 billion in liabilities. That sure doesn’t look like insolvency.
In another difference, instead of creditors’ committees, the C.C.A.A. uses a monitor, a single individual who reports to the court. A monitor falls somewhere between a trustee and an examiner in a Chapter 11 proceeding. The monitor plays a key oversight role but is not quite as intrusive as a full-blown trustee.
The challenge BlackBerry faces is downsizing its operations as it customer base shrinks. Companies that fail to adjust to current reality can quickly find themselves insolvent as they try to pay for the infrastructure of an older, grander operation with the revenue of a newly smaller business. While BlackBerry is burning shareholder value like a fire on a drought-stricken hillside, as long as the company shrinks its costs along with its size, it can avoid bankruptcy.
The real question is whether BlackBerry can pull out of a self-reinforcing cycle. If not, at some point the company will become so small it will have all the utility of the telegram system.
Stephen J. Lubben is the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and an expert on bankruptcy.
