Name That Trade $BBRY: Berry Picked Over

by Dan June 18, 2015 12:18 pm • Commentary

My fellow Fast Money panelist and TickerDistrict contributor Brian Kelly laid out a bullish thesis on shares of Blackberry on a Behind the Trade segment for CNBC:

Back in January we took a look at BBRY after rumors emerged that Samsung was considering a bid for BBRY (read here).  Our view at the time was similar to BK’s that BBRY’s deal with Samsung on “security solutions for Android devices, their positioning within the connected car space with their QNX platform, and their balance sheet and valuation make the stock fairly attractive for a contrarian play.  BUT, this company has been picked over for years as BK mentions in the video.  So something has to give. Back in Jan I concluded before placing a bullish trade:

I reckon the sum of the parts equation just got a little bump, and with a market cap of $5.4 billion, $2.7 billion in cash, and $1.65 billion in debt, if the company was able to get back in the black and actually grow sales again, there may ultimately be that allusive bidder for the most valuable parts of the company as they diversify away from hardware.

Since that time shares of BBRY have declined about 10% and are quickly approaching the prior 52 week lows:

BBRY 1yr chart from Bloomberg
BBRY 1yr chart from Bloomberg

Below $9 there is not support down to $8, with probably a 25% lower at $6:

BBRY 3yr chart from Bloomberg
BBRY 3yr chart from Bloomberg

Event: On Tuesday BBRY will report their fiscal Q1 results.  The options market is implying about a 7.5% one day move which is rich to the 4 qtr avg of 4.25%  

My View:  The company has been a train-wreck, with expected sales this year of nearly $3 billion, down from nearly $20 billion in fiscal 2011.  Since Apple introduced the iPhone in 2007, BBRY has been on the heels, chasing almost every competitor in a segment that they not only invented, but dominated for a decade.  Has the sentiment in the stock gotten so poor that the sum of the parts and strong balance sheet (despite lack of earnings) put this company back on the acquisition target list? If so I suspect it would be for QNX and patents as BK suggests, but at this point I don’t think you step in prior to Tuesday’s results.

Would BBRY be an easy acquisition for a hardware provider like Samsung, of course it would given their battle with Apple, but I think Microsoft’s experience with their purchase of NOokia, and Google’s with Motorola, suggest that maybe just maybe Apple is the only one really good a vertical integration in the smartphone space.  I have no idea what QNX is worth, and obviously few think their legacy patents are worth much, and I suspect their hardware division has negative value.  While I was willing to take a shot in January with a sort of “where there is smoke there is fire” mentality, I have now nearly thrown in the towel.

Gun to my head, and its not, If I had to play I’d likely consider risk reversals, selling a downside put and using the proceeds to buy an upside call.  At this point I only see the stock going up above $12 on a takeover, which is a low probability event. For instance with the stock at $9.13 you could sell the Dec 7 put at .30 and buy the Dec 12 call for .35, this trade costs you 5 cents. Worst case scenario the stock is at 7 or below and you are put the stock, best case its above 12 and you have long exposure, and between a very wide range of 7 and 12 u lose a nickel.  I am just not that interested at this point.