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A mouthful of pips

18 October 2013 By John Foley, Ethan Bilby

Lenovo is wading into the BlackBerry jam. The Chinese technology group has gained access to the books of the Canadian smartphone seller, which is already considering a $4.7 billion approach from shareholder Fairfax Financial Holdings. If it chose to bid, Lenovo would have to do better than the current offer of $9 per share, and overcome more obstacles.

The foundering BlackBerry has three main assets. Patents, which Lenovo might want; handsets, which it probably doesn’t; and enterprise services, which it almost certainly can’t have.

The patents might help Lenovo expand its smartphone division in the West, where it makes just 5 percent of its sales, according to Gartner. BlackBerry’s $2 billion or so portfolio of patents, as valued by analysts, won’t attract users directly, but they would protect Lenovo from costly infringement suits.

BlackBerry’s handsets, which the market values at near zero, may be worth slightly more than that to Lenovo. It could co-opt the fixed keyboards for diehard users. Most sensible might be to rebadge its own decent mid-range phones with BlackBerry’s brand, and push them to the Canadian group’s existing vendors.

Security is the stickiest point. Lenovo isn’t a state-owned company, but Blackberry’s popularity among the business and political elite – including President Obama – would be unlikely to survive a Chinese takeover. Regulators may even demand that it offload BlackBerry’s enterprise business, along with patents that go with it, to another buyer like Cisco, Oracle or IBM .

That ensures things won’t be simple. Any proposal would have to be discounted for the fiddliness of a break-up – and for inevitable political meddling. Canada, the United States and China would all want time to deliberate. If investors felt a Lenovo offer had, say, a 75 percent probability of completion, the Chinese would need to offer $12 per share to get a hearing.

That may not stop Lenovo trying. It has around $3 billion of cash, net of its negligible borrowings, according to Eikon data. And it’s no stranger to political challenges, having bought IBM’s personal computer business in 2005. But a bid would be finely balanced, and like BlackBerry itself, offer little juice.


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