BlackBerry Ltd (NASDAQ:BBRY)'s patent portfolio should be valued more than the current stock price. The proposed offer from Fairfax Financial for just $9 a share, or $4.7 billion, is just a come-on to start the acquisition process. Though the offer might seem high given the fact that BlackBerry has been languishing for years. But, its patents alone are worth an estimated $2 billion to $3 billion, and smartphone patents are in high demand.
As a result, Fairfax might end up battling a tech giant like Microsoft Corporation (NASDAQ:MSFT) and be forced to make a higher offer for BlackBerry. While others speculate Fairfax is simply trying to draw in more offers and cash out its 10% BlackBerry stake. If anyone does buy BlackBerry, most of the value would come from the company's patent portfolio. Chris Marlett, CEO of MDB Capital Group, an intellectual property-focused investment bank, values Blackberry's patents at $2 billion to $3 billion.
Only a select few smartphone players, private-equity firms, and other technology companies would pay the billions of dollars that analysts say BlackBerry's IP is worth. After all, those patents include, covering hand-held design features, enterprise email, messaging, encryption, security, touch screens, text prediction, and more.
BlackBerry's 7,500 U.S. patents, granted and pending, are of limited long-term value to private-equity investors such as Fairfax. For those types of businesses, the only logical course would be to flip the portfolio to other players in the smartphone industry for a quick profit.
The way to extract real value from BlackBerry's IP is to use the patents in cross-licensing deals between tech companies, allowing players to use each other's technologies. Patents can also be used in litigation, either on offense to protect turf, or to defend against infringement.
"While the merits of individual patents can be debated, the overall size of the BlackBerry patent portfolio makes it highly attractive," said Alan Fisch, an intellectual property lawyer with Fisch Hoffman Sigler LLP in Washington, D.C.
Intellectual Asset Management, a British trade publication, recently put BlackBerry in an elite group of 14 companies worldwide that hold at least 3,400 U.S. patents, make new applications at a minimum rate, and own the most coveted intellectual property.
What's the rest of BlackBerry worth? BlackBerry's "hardware, infrastructure, and operating system" could be worth $2 billion. In addition to the hard assets, the company had $2.6 billion in cash on hand at the end of last quarter. But the company blew through $500 million in that three-month period.
I think David Braun, the CEO of IP-focused investment bank Capstone made the best calculation, he set the fair price for BlackBerry at $6 billion.
Who might bid? A Nortel-style consortium is a likely solution for BlackBerry's patents, even if Fairfax does buy the whole company and sells off the parts. Apple Inc. (NASDAQ:AAPL) or Google Inc (NASDAQ:GOOG), for example, would have the resources to buy these patents.
A possible bidder for BlackBerry, as a whole, is less clear. One potential buyer is BlackBerry co-founder and former co-CEO Mike Lazaridis, who recently reported an 8% stake. Lazaridis could team up with some private-equity firms to make an offer for the entire company.