BlackBerry, which pioneered mobile email with its first smartphones and email pagers, said on Monday it had set up a committee to review its options, sparking a debate over whether Canada's one-time crown jewel is more valuable as a whole or snapped up piece by piece by competitors or private investors.
The company said Prem Watsa, whose Fairfax Financial Holdings Ltd is BlackBerry's biggest shareholder, was leaving the board as BlackBerry determines its next steps.
Canada's Globe and Mail newspaper said Fairfax was talking to industry and private equity players about possibility taking BlackBerry private. Fairfax did not respond to requests for comment.
Other potential buyers of BlackBerry assets, if not the company itself, could include deep-pocketed Canadian pension funds, as well as some of its rivals.
BlackBerry, once a stock market darling, has bled market share to Apple Inc and phones using Google Inc's Android operating system, and its new BlackBerry 10 smartphones have failed to gain traction with consumers.
BlackBerry shares rose more than 10 percent to $10.78 in New York and C$11.13 in Toronto in afternoon trading. But the shares remain well below their levels in June, before the company reported dismal results that included poor sales of the BlackBerry 10 that it viewed as key to a turnaround.
The share price peaked at about C$150 in June 2008, when BlackBerry, then known as Research In Motion, had a market capitalization of more than $80 billion.
BlackBerry's assets include a shrinking, yet well-regarded services business that powers its security-focused messaging system, worth $3 billion to $4.5 billion; a collection of patents that could be worth $2 billion to $3 billion; and $3.1 billion in cash and investments, according to analysts.
Even at a conservative estimate, that is more than the company's $5.4 billion market capitalization, although analysts say the smartphones that bear its name have little or no value and it might cost $2 billion to shut the unit that makes them.
BlackBerry's fate is likely to involve the Canadian government, which vets foreign takeovers of domestic companies. The government said it would not comment on speculation, but a spokesman for Industry Minister James Moore said the government wished BlackBerry well in its search for new options.
Companies tipped as possible partners for BlackBerry have included Microsoft Corp and Amazon.com Inc, as well as Lenovo Group Ltd, where a senior executive said earlier this year the Chinese computer maker would consider a bid for BlackBerry to boost its own mobile business.
But Chinese involvement would trigger deep concerns about security issues from the Canadian government.
Sources say Wall Street bankers have also pitched deals involving BlackBerry to companies such as HTC Corp and Samsung Electronics Co Ltd, so far without success.
Watsa said Fairfax has "no current intention" to sell its BlackBerry shares - some 10 percent of the company. But if he remained on the board of directors, he would have a conflict of interest if he wanted to be part of a play for BlackBerry.
"I continue to be a strong supporter of the company, the board and management as they move forward during this process," he said in a statement.
Analysts expressed skepticism about the new committee, noting that BlackBerry announced a review more than a year ago when it hired JPMorgan and RBC as financial advisers. A source said both are still involved in the current strategic review.
"While a change in structure could result in a higher stock price in the near term, we do not envision any changes that would help BlackBerry reverse the significant smartphone share loss or rapid decline in service revenues," said Tim Long, analyst at BMO Capital Markets.
A source familiar with the situation told Reuters that the board decided to form the special committee last week. It was not clear if that decision came before or after Reuters reported that BlackBerry was warming to the idea of going private to give itself room to recover.
One source said BlackBerry has been talking to private equity firm Silver Lake Partners about potential collaboration in enterprise computing.
Canadian pension funds, with their long-term investment horizons, are among those with the money and domestic credentials to take a run at BlackBerry.
Three of Canada's big pension funds declined to comment. But senior executive at two of the others said they and their peers would definitely consider partnering with private equity in any deal for BlackBerry.
Legal experts say any deal taking BlackBerry private would work best if it had Canadian involvement.
"There is little question that the federal government would prefer a made-in-Canada approach," said Subrata Bhattacharjee, co-chair of the national trade and competition group at the Heenan Blaikie law firm in Toronto.
"A foreign strategic investor would certainly have to consider some very significant regulatory issues, including domestic and foreign antitrust concerns. Some foreign investors might also have to address national security concerns," Bhattacharjee said.
BlackBerry said board member Timothy Dattels will chair the new committee, which will also include BlackBerry Chief Executive Thorsten Heins.
Dattels is a senior partner at private equity firm TPG Capital and a former top investment banker at Goldman Sachs Group Inc. His appointment to BlackBerry's board in June last year sparked a flurry of speculation that the company might consider a leveraged buyout or going private.
The new BB10 devices hit store shelves this year just as the high-end smartphone segment was showing signs of saturation in markets such as the United States. Samsung Electronics recently reported results that fell shy of expectations, while Apple earlier this year reported its first quarterly profit decline in more than a decade.On the mid- to low end of the market, competition is growing intense, with Chinese manufacturers such as Huawei Technologies Co Ltd and ZTE Corp gaining ground.