A month ago, worldwide PC leader Lenovo quietly set the wheels in motion to make a bid for wallowing mobile device maker BlackBerry (BBRY) but was rebuffed by the Canadian government. Indeed, Canada refused to sanction a takeover by the Chinese-owned company based on national security issues.
According to a report in the Toronto Globe and Mail, Lenovo wanted to put forward a formal proposal to buy BlackBerry -- but never did so because Canadian government officials let it be known in talks with the mobile maker that a bid would not be welcomed.
On Monday, BlackBerry abruptly abandoned its plans to be acquired, fired CEO Thorsten Heins and installed former Sybase chief John Chen in the interim, and moved to raise about $1 billion from institutional investors, including Fairfax Holdings, a 10 percent shareholder that struggled to raise sufficient financing to complete an earlier $4.7 billion takeover bid for the company.
Based solely on Lenovo’s just completed Q2 2013 financial performance, it’s easy to see why the PC maker would make a serious run at BlackBerry. Specifically, Lenovo said that its smartphone and tablet sales in Q2 increased by 106 percent year-over-year to $1.5 billion, or 15 percent of the company’s overall revenue for the period and that combined shipments of those devices exceeded PC units for the second quarter in a row. In particular, the vendor pointed to a 64 percent uptick in smartphone sales in China—the only geography in which it sells handsets.
While Lenovo hasn’t come right out and said it wants to sell smartphones beyond China, it hasn’t denied it either, emphatically pointing to its wide portfolio of products as reason for its continued growth in the market. Acquiring BlackBerry’s assets would have been an instant-door opener for Lenovo into the mobile market beyond China and given it control over the company’s highly-prized patents and well-regarded enterprise business.
Secure data infrastructure
In BlackBerry’s case, the Canadian government pointed to the mobile maker’s deep ties to the country’s data infrastructure and expressed a reluctance to let a foreign-owned entity gain access, let alone ownership, to it, the Globe and Mail reported. Inasmuch as BlackBerry’s secure network is much of its stock-in-trade at this point, many of its customers are government agencies and large enterprises sending and receiving high-level, encrypted, secure messages over the transom. The prospect of any non-Canadian entity’s involvement evidently wasn’t comforting to Canadian officials.
The Globe and Mail also reported that on Monday, as the Fairfax proposal to take BlackBerry private crumbled, a Canadian official source indirectly addressed the Lenovo bid that never materialized.
“This [BlackBerry] is a company that has built its reputation and built its success on system security and its infrastructure. That’s one of the reasons businesses use BlackBerries…The security is robust and we’d obviously have an interest in making sure we didn’t do anything or allow anything that would compromise it.”
Approximately one-third of Lenovo is owned by Legend Holdings Ltd., a Chinese investment company.
Some of the problem with Lenovo making a play for BlackBerry had to do with expediency. Were the Canadian government to have seriously considered a bid by the Chinese company, a lengthy security audit would have ensued—an intervention not in BlackBerry’s interest or favor considering it needed operating capital and new leadership sooner rather than later.