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The demise of Blackberry: How to impress foreign firms & recruiters with commercial awareness

e34hi133e34hi133How does a business lawyer or strategic advisor add value to his client? How can these skills be demonstrated in an interview by a fresher or a lateral hire or in a client meeting? Legal entrepreneur Abhyudaya Agarwal discusses strategies.

Understanding how to identify strategic problems arising from a commercial situation and suggesting possible solutions is one of the most important abilities that an interviewer is looking for in a potential hire, whether it is a fresher, a lateral hire or even an independent consultant.

How can these abilities be demonstrated in the interview process? I am going to explore this by using Blackberry’s recent situation as a model commercial study – this is like a business write-up, and very similar to the case studies used by foreign law firms such as Allen & Overy and Herbert Smith Freehills for their interview process.

After every paragraph I will suggest the possible issues that you should be thinking of as a business lawyer or as an advisor and the solutions that you should explore while thinking of those issues. Recruiters will be rather pleased if you can demonstrate such abilities.

Systematically following the method demonstrated in this exercise will also be helpful in performing better at internships – in the absence of personalised training at law firms, most interns do not receive guidance and face difficulties in appreciating the relevance of a transaction, or in understanding how their task adds value to the eventual transaction. Internships are often unsystematic and hurried for most law students. Contrary to the popular understanding, they rarely have the time to spend to train a law student from scratch, although they may take interest in someone who is unusually bright. Developing such skills beforehand with systematic practice can make all the difference.

Let’s get to the task, right away. It takes quite a while to understand and apply this information to suggest creative solutions – let’s start with identifying essential issues.

Imagine reading the following article in a business newspaper or magazine (or a case study). My editorial inputs and pointers are provided for each paragraph.

Last year, people everywhere were shocked to hear the news about the downfall and takeover of BlackBerry. But for those who had been carefully following the market, this came as no surprise. It was not something that was sudden; rather it was a sleeping demon that had been feeding on itself since the past six years.

Rewind to 2007: BlackBerry was the apple of everyone’s eye, until the launch of iPhones by Apple. The stock prices of BlackBerry were stable at more than $140 per share, and it failed to recognize the iPhone as a threat. The iPhone did what BlackBerry had failed to do – woo the consumer, and not concentrate on just the professionals. Both Blackberry and Microsoft did not see iPhone as a threat, because according to them, a phone without a Qwerty keyboard could not be used for sending emails, shutting out business class and professionals as potential customers. But slowly, the iPhone began to take over the market, and Blackberry began to slip. In September 2011, as Apple was geared up to launch the iPhone 4S, BlackBerry’s internet service suffered a complete blackout for several days, drawing a lot of flak from consumers. Not only this, the company had to lay off over two thousand employees due to growth problems.

Comment: The above paragraph contains very little relevant information, except for the stock price and the mention of Apple as a competitor. This should just enable you to put on your thinking cap. Park this information in the background to use it in conjunction with other useful facts or ideas you may discover subsequently.

Blackberry set out to redeem itself. Thus began the story of BlackBerry 10. This was a source of trouble from the very beginning. Even before the launch, there were allegations of trademark infringement on the platform, which was originally named BBX. A name change led to a further delay in the launch from December 2011 to middle of 2012. The anticipation and hype the company had managed to create because of the excitement of a new platform died because of the delay. As if this was not enough, the CEOs of the company, Mike Lazaridis and Jim Balsillie, resigned, leaving the company in charge of Thorston Heins.

In March 2012, for the first time in years, BlackBerry showed a net loss. The signs were there for all to read. It did not help that Heins’ plans for ‘restructuring’ included laying off more than double the number of employees laid off in 2011, replacing executives who had been with the company for years and delaying BlackBerry 10 for yet another year.

Comment: This paragraph points out four commercial problems for Blackberry:

  • net loss (think about how a company can get itself out of this situation),
  • resignation of the CEOs,
  • lay-offs for employees,
  • intellectual property disputes.

As an active reader, you should start thinking of what options that company has from this point itself - think of these when you read other information, news, watch media interviews or while searching on these issues on the internet in future. It is possible that some other company may have dealt with similar situations earlier, which could be a solution that can be explored, or at least, validly suggested by you to an interviewer.

In an interview, you will be required to think of how these issues can be resolved or their risk minimized for the business. For example, are there easy ways to end infringement proceedings? Is it viable for Blackberry to consider entering into a license? If infringement allegations are emerging from another market-leader who can offer value to Blackberry, can the parties explore entering into a cross-license, like the Microsoft-Apple cross licensing agreement in 1997? Could Blackberry consider acquiring the complaining party (especially if it is a much smaller player)?

Are there risks of litigation from the employee lay-offs? Has any employee sued the company? These are the questions you should be thinking of.

Let’s move on.

Finally, somehow, BB 10 was launched with two new smartphones – the BlackBerry Z10 and Q10. The Z10, the first BB 10 phone, showed a marked departure from BlackBerry tradition. It did not have a Qwerty keypad, had a state-of-the-art HD display and around 70,000 apps. The Guardian carried an article talking about BlackBerry’s renaissance. It quoted Frank Boulben, formerly of Orange, “It could be the greatest comeback in tech history, the carriers [mobile networks] are behind us. They don't want a duopoly." It seemed as if BlackBerry might be turning over a new, positive page. The BlackBerry 10 launch event was also witness to the announcement that the official name would be changed from Research in Motion to Blackberry. A symbolic new page too.

Blackberry’s troubles were far from over. Between the massive drainage of effort BB 10 had taken to launch – two years and fifteen acquisitions – and Google’s Android and Apple’s iPhone, BlackBerry’s share fell to a measly 5 percent. Balsillie, at one time a CEO and a leader of the company, himself sold all his shares. Lazaridis too dumped 3.5 million shares – shares of the company he was a co-founder of. Was any other sign needed after this?

Comment: Observe how Blackberry attempted to rescue itself:

  • Launch of new products
  • Active pursuit of acquisitions

These are obvious solutions that any failing company will pursue to revive itself – you can suggest these in any situation where you can identify a failing company.

Notice the diminished stock price – since Blackberry is a listed company, every relevant announcement pertaining to the company will be reported to the exchange, and can possibly have an impact on its stock price. Note how sale of founder shares has resulted in lower confidence in the company.

The open letter was an interesting managerial trick to inspire confidence – other measures that can be adopted to stabilize or boost the stock price are:

  • announcing an alliance with a key competitor (for example, Apple did that in 1997 with Microsoft),
  • an acquisition that complements its capabilities – for example, Facebook’s acquisition of Instagram (you will require some background facts to be able to even make a credible suggestion about a possible acquisition)
  • Getting a major investment
  • Taking the company private – business details need not be reported on a periodic basis to shareholders and management has significant flexibility to conduct operations in case of a private company. Michael Dell has recently structured a deal with a private equity investor to take Dell private. Stock-price related worries don’t exist anymore for the management of a private company.

On 12 August 2013, the company released a statement saying it was open to be purchased. On the same day, Prem Watsa also resigned from the board. He was the foremost shareholder. In September, there were rumours of laying off 4500 employees, and BlackBerry declared a CAN$1 billion operating loss. On September 23, the company signed a letter of intent with Fairfax Financial Holdings to acquire BlackBerry at $9 a share. Fairfax was led by Watsa. John Chen was appointed CEO after Heins was laid off. On October 15, 2013, BlackBerry tried to pull a desperate reassurance trick. It published an ‘open letter’ in nine countries, which was nothing more than a paid advertisement,trying to reassure consumers that BlackBerry was still a reliable brand. More than anything else, this reflected the depth of the mire BlackBerry was entangled in.

Comment: You need to understand the importance of a letter of intent – this is the first step in an M&A transaction. You should be able to answer whether it is binding or not, and what are the possibilities if one of the parties walks out of the deal.

Note that Blackberry suffered an operating loss. What are the implications of this? It is important for a business lawyer to understand financial statements, even if he is not an accounting expert or a math whiz. What is the meaning of an operating loss? How is it different from other kinds of losses? A simple search on Investopedia will help you understand the basics of these concepts (unless you go for specialized courses such as the CFA which is fairly extensive, or the course we conduct with NUJS which teaches accounts and financial planning for the uninitiated).

From over $140 in 2008, shares had fallen to less than $14 by March 2012. Fairfax, a Canadian private equity investor, had hurriedly announced acquisition, but could not show enough financials for it.

The grapevine said that BlackBerry was considering breaking up the company and selling its assets separately. Bloomberg reported Albert Fried and Co. analyst Sachin Shah saying that breaking up the company will be more profitable indeed.

Comment: Why would someone acquire a company, just to break it up and sell its components? What are the other ways to value the company?

Hint: Ordinarily, the value of a company is usually much more than the value of the assets it possesses. However, in this case, the breakup value of the company is probably being argued to be higher than its book value or market value.

By November 4 2013, Fairfax could not come up with the money. Other buyers were showing interest, but apparently BlackBerry was off the table. There were talks of raising a billion dollars and rebuilding the company. This had a huge effect on the stock market, with BlackBerry shares plunging more than 18 percent in light of this new development. Fairfax now is not taking over the company, but has invested in a bond deal and a shakeup of the management. Fairfax has opted to invest approximately $250 million in the form of debentures.

As of now, BlackBerry is struggling to rebuild itself. In the face of successful and growing Google and Apple shares, it is difficult to see how -. The company is now picking up executives who have experience in restructuring. On January 6, 2014, it was announced that Ron Louks has joined the BB team as ‘President of devices and emerging solutions’. Louks was intitially the Chief Technology officer at Sony Ericsson, later the chief strategy officer at ailing HTC and finally went on to become CEO at open NMS.

Whether BlackBerry can rebuild itself again or nor is something everyone is waiting to see. John Chen still insists that the company is ‘well-positioned for the future.’

Comment: Typical questions that you should be thinking of at this stage are:

What are the problems a potential acquirer is going to face with respect to Blackberry?

Hints: Excessive debt, lack of visionaries and talented higher-level management (founder CEOs have resigned), lack of sufficient manpower (due to lay-offs)

Can you think of any attributes of a potential acquirer? What kind of options can you think of in terms of restructuring?

Hints: Does it necessarily have to be a mobile phone maker? Could it be another technology company that has a huge patent portfolio? Will Blackberry make a good target for a technology giant such as Intel or Qualcomm? Why should (or shouldn’t) Google consider acquiring it?

Each of these questions will require some independent thought or research – none of these questions have definite yes or no answers. However, an interviewer is looking at signs that you can ‘think independently’, or ‘think on your feet’, when faced with a commercial situation.

What are the takeaways from this exercise?

1. You can use the method demonstrated in this exercise to practise ‘active reading’ and to put your brain into an analysis frame when faced with commercial issues.

Most find it difficult to assimilate information as their brain faces a shutdown when they come across information. This is due to lack of prior initiation and practice – try to regularly identify issues involved in commercial transactions when you read a business law daily or a periodical. Slowly, you will become an active reader.

2. If you use this method systematically, you will be able to demonstrate that you understand things like an ‘industry insider’ or an ‘experienced lawyer’.

You can create mental slots for the issues you notice in commercial situations you read about (e.g. Blackberry) – try to plug these slots in (even if experimentally) with possible solutions that you subsequently identify when you stumble upon other information. This is usually a trial and error method but the ‘brainwaves’ generated really help a lot in thinking intuitively about viable solutions.

Carrying out this exercise over time will help you in expanding your knowledge-base and your understanding of different industries. This is a phenomenal way to add value – it can give the impression that you are thinking like an ‘industry insider’ or a ‘mature’ lawyer in an interview, which is quite pleasing to a recruiter. Needless to say, chances of success in interviews stand drastically increased.

Abhyudaya Agarwal has worked with Trilegal as a restructuring lawyer. He is a cofounder of iPleaders, a legal education venture. Special thanks to Surabhi Grover of Rajiv Gandhi National Law University for preparing the case study.

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