NEW YORK (TheStreet) -- BlackBerry's (BBRY) sudden and unexpected move on its consumer business makes the deal team at Microsoft (MSFT) appear brilliant for locking down the wireless assets of Nokia (NOK).
The real winner from the end of consumer BlackBerry phones appears to be Microsoft. Apple (AAPL) and Android phones already enjoy the majority of market share that cutting up BlackBerry's consumer segment won't amount to much. Let's take a look at BlackBerry and what investors can expect.
About a month ago I wrote my latest valuation assessment of BlackBerry to temper irrational exuberance. The article was in response to the shares soaring higher on news BlackBerry was looking for a buyer.
Here's the germane takeaway: "As an investor, I wouldn't try to get cute and hold out for everything you can. This is a buyer's market, and every participant knows it. A year ago, BlackBerry was still cash-flow positive and was months away from releasing BB10. That's a whole different landscape than BlackBerry currently finds itself navigating. "After adjusting the balance sheet from a bird's eye view, I think BlackBerry has scrap sale assets near $7.5 billion. Remove $3.6 billion in liabilities and you have a total value near $4 billion. "BlackBerry has 515 million shares, so you take $4 billion divided by 515 million shares, leaves you with $7.75 per share as a starting point. The right buyer may view BlackBerry as a company that can generate profits under his or her management, and that brings us to a buyout valuation above $14 a share." The numbers have changed. If you've been keeping score, about a year ago I placed the scrap value slightly higher than $12 a share and that was before announcing they started bleeding cash. After BlackBerry 10 missed the last holiday shopping season because of endless delays and excuses, and only seconds away from kicking off the busiest shopping season of the year, BlackBerry's CEO Thorsten Heins decides now is the time to pull the plug on smartphones? Shutting down consumers sales this time of year doesn't make sense me unless one of two scenarios exist. BlackBerry has found a buyer willing to take the rest of the company and it doesn't want the drain of consumer sales/shutting it down and the unpleasantries of laying off 4,500 workers.
Sales of handsets are so bleak and burning through cash at such an accelerating rate that management believes even the best selling season of the year will result in increasing losses. It's hard to imagine sales have imploded on a scale that renders the fourth quarter a loser, but either way all related assets should be valued at scrap value.
After removing non-cash losses from inventory charges, the operating losses should come in between $20 million to $30 million from $1.6 billion in revenue. At face value, that's a long way from not being able to sell phones at a profit during the fourth quarter, leaving the most likely scenario BlackBerry is nearing a "strategic alternative."
Samsung, LG and HTC certainly make the list of usual suspects for contenders, albeit politically one has to give the edge to Google (GOOG), Microsoft (MSFT) and maybe even a longshot Yahoo! (YHOO). At the rate Yahoo!'s CEO Marissa Mayer is buying companies, Yahoo! might just enter the fray if for no other reason than to force Google or Microsoft to pay up. How should investors price their shares? Last month I calculated the scrap value near $7.75 a share as the starting low point. If you remove $1 billion in valuation, you're left with about $5.81. We can't add as much blue sky as before because we're not including consumer lower cost smartphones, taking the buyout valuation to around$11.50. Investors may find the right buyer to pay more, but the days of a $30 buyout left before the BB10 hit the shelves. Investors should plan accordingly. At the time of publication the author had no position in any of the stocks mentioned. Follow @RobertWeinstein This article was written by an independent contributor, separate from TheStreet's regular news coverage.Robert Weinstein is an active trader focusing on the psychological importance of risk mitigation, emotion and financial behavior of market participants. Robert co-founded the investing blog StockSaints, where he writes a journal about his trading activity and experiences. In addition to TheStreet, Robert also contributes to Real Money Pro, providing real-time trading ideas for stocks, options and futures.