Stocktake: Has the music stopped for Blackberry?
The prospect of a Blackberry takeover begs the question: why? The crisis-hit smartphone company has agreed a tentative $4.7 billion (€3.5 billion) deal with a consortium led by Canadian insurer Fairfax, Blackberry’s largest shareholder.
Just days earlier, Blackberry had announced an earnings miss of almost $1 billion – possibly “the worst miss that we have seen in 17 years of covering tech stocks”, said Nomura.
Usually, investors expect a higher bid to drive a firm’s stock price above the offer price. However, Blackberry shares soon fell to $8, below the $9 offer price.
Fairfax’s “letter of intent” to buy Blackberry is not binding. It has no financing in place.
Its shareholding has already lost it hundreds of millions of dollars; with the bid coming days after another share price panic, it’s easy to see this as a desperate ploy to flush out a bidder and put a floor under the stock.
Already, however, $9 is being seen as a ceiling, not a floor.
Microsoft’s recent deal with Nokia removed one of Blackberry’s most likely suitors.
As hedge fund manager John Hempton noted at the time: “The music has stopped. Blackberry is standing up. There are no chairs left.”
Unwritten rules in a fool’s game
One might have thought Blackberry’s descent from $230 in 2007 all the way down to single digits might have sparked analyst revulsion. Not so, commentator Mark Hulbert noted, most had a “hold” rating on the stock.
The “hold” phenomenon is not confined to Blackberry, with Hulbert noting 93 per cent of analyst ratings are “hold” or higher. Just 2 per cent attract a “strong sell” rating, with 4 per cent getting a “weak hold”. In 2011, Business Insider chief Henry Blodget, the infamous analyst banned from the industry in 2003, gave many good reasons why “sell” ratings will always be a rarity. (Essentially, they can be risky, controversial and antagonise companies.) “The more polite way to tell people to sell,” he said, “is to say ‘hold’.” Institutional investors have long known this. A study analysing data from 1994 to 2001 found they typically offload stocks downgraded to “hold”. Not so small investors, who reacted to “buy” and “sell” ratings but not “hold”.
Trading on analyst recommendations is a fool’s game but if you’re going to do it, it’s best to know the unwritten rules.
Travel agent’s internet stocks are flying
Online travel agent Priceline recently became the first S&P stock to breach $1,000 (€738). Up 60 per cent this year, Priceline, like Facebook and LinkedIn, is one of many internet stocks to be flying high these days.