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BlackBerry, a struggling smartphone developer, has announced that it has entered into an agreement pursuant to which Fairfax Financial Holdings Limited and other institutional investors will invest in BlackBerry through a $1 billion private placement of convertible debentures. Fairfax has agreed to acquire $250 million principal amount of the debentures. The company will also abandon privatization plans and change management.

Upon the closing of the transaction, John S. Chen will be appointed executive chair of BlackBerry’s board of directors and, in that role, will be responsible for the strategic direction, strategic relationships and organizational goals of BlackBerry. Prem Watsa, chairman and CEO of Fairfax, will be appointed lead director and chair of the compensation, nomination and governance committee and Thorsten Heins and David Kerr intend to resign from the Board at closing. In addition, Mr. Heins will step down as chief executive officer at closing and Mr. Chen will serve as interim CEO pending completion of a search for a new chief exec.

Under the terms of the transaction, the purchasers will subscribe for $1 billion aggregate principal amount of 6% unsecured subordinated convertible debentures convertible into common shares of BlackBerry at a price of U.S. $10.00 per common share, a 28.7% premium to the closing price of BlackBerry common shares on November 1, 2013. The debentures have a term of seven years. Based on the number of common shares currently outstanding, if all of the U.S. $1 billion of debentures were converted, the common shares issued upon conversion would represent approximately 16% of the common shares outstanding after giving effect to the conversion.

“Today’s announcement represents a significant vote of confidence in BlackBerry and its future by this group of preeminent, long-term investors. The BlackBerry Board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders. This financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing our substantial cash position.  Some of the most important customers in the world rely on BlackBerry and we are implementing the changes necessary to strengthen the company and ensure we remain a strong and innovative partner for their needs,” said Barbara Stymiest, chair of BlackBerry’s board.

Today’s announcement marks the conclusion of the review of strategic alternatives previously announced on August 12, 2013.

“I am pleased to join a company with as much potential as BlackBerry. BlackBerry is an iconic brand with enormous potential – but it’s going to take time, discipline and tough decisions to reclaim our success. I look forward to leading BlackBerry in its turnaround and business model transformation for the benefit of all of its constituencies, including its customers, shareholders and employees,” said Mr. Chen

The closing of the transaction is subject to customary conditions, including approval from the Toronto stock exchange.

Pursuant to the transaction agreement, the investors have an option to purchase up to an additional U.S. $250 million principal amount of debentures within 30 days following closing. If an additional U.S. $250 million of debentures is issued and all U.S. $1.25 billion of debentures were converted, the common shares issued upon conversion would represent approximately 19.2% of the common shares after giving effect to the conversion, based on the number of common shares currently outstanding.

Tags: Blackberry, Business, RIM

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