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Struggling BlackBerry agrees to be sold for $4.7 billion

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Staff reports CNBC.com

Struggling smartphone maker BlackBerry has agreed in principal to be acquired by a consortium led by its biggest shareholder, Fairfax Financial, a Canadian insurance company, for $9 per share, in a deal that would total $4.7 billion.

The announcement came the same day that Apple, to whom BlackBerry was losing out competing for market share, reported selling a record 9 million of its new 5S and 5C model phones on the first weekend they were on sale -- sending Apple stock up 5 percent.

By comparison, shares of BlackBerry were halted prior to the Fairfax announcement, and when trading resumed, the stock rose just 1.1 percent to $8.82 in afternoon deals.

Last week, BlackBerry said it was laying off 40 percent of its work force and expected to post a second-quarter loss of almost $1 billion. It had been looking at "strategic alternatives" for several weeks, including selling itself, or going private.

"This is a company that needs to go private if they have any chance," Colin Gillis, an analyst at BGC Partners, told Reuters. "They'd be able to restructure outside of the public eye, take a long term view, and run the company at break even."

Fairfax Financial, sometimes called the Berkshire Hathaway of Canada, is a holding company whose primary business is in insurance. It owns 10 percent of BlackBerry's shares and is led by Prem Watsa, a chemical engineer by training who has run the firm since the mid-1980s.

"We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world," Watsa said in a statement.

Shares in BlackBerry, based in Waterloo, Ontario, had plunged since Friday, when the company warned of a sharp drop in revenue and massive job cuts. The group has until Nov. 4 to conduct due diligence.

"If I was a Blackberry shareholder I would jump at it," said James Faucette, an analyst with Pacific Crest. "They're actually entering into a period of relative stability. It's going to be hard to improve things going forward.  They're going to be hard-pressed to find a more willing buyer.

"BlackBerry itself is worth less than he's offering," said Faucette.

Brian Colello of Morningstar said based on the company's disastrous earnings warning last Friday, "I think a deal had to happen and the sooner the better. This is probably the only out for investors and the most likely outcome.

"The benefit to this sort of takeover is the ability for BlackBerry and the consortium to reinvent the company without public scrutiny. So we won't see any of these warnings or earnings releases that do nothing but disappoint investors. The company can go ahead with its strategy, as it pleases, that's a positive."

BlackBerry pioneered the concept of on-your-hip email with its first email pagers, offering secure email away from an office, and for years it was the must-have device for governments, businesses and lawyers.

But in recent years it has lost market share to the iPhone from Apple Inc and to devices using Google Inc's Android operating system. Last Friday it said it will slash 4,500 jobs, or about 40 percent of its work force, and expects to post a nearly $1 billion second-quarter loss.

Ironically, the announcement came the same day Apple's new $199 flagship iPhone 5S went on sale and people were standing in line around the country to buy it. It was trying to compete with new advanced smartphones by Apple, Samsung and other rivals that helped put Canada-based BlackBerry in the current financial bind.

As part of a massive restructuring, the struggling company said it set targets to reduce its operating expenditures by approximately 50 percent by the end of the first quarter in fiscal 2015.

(Reuters contributed to this report)

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