'I Can't Believe These Companies are Still in Business'

We were chatting internally last week about a list of companies a short seller we know had mentioned. They included two old favorites – Blackberry (BB) and Eastman Kodak (KODK). Without skipping a beat, Sam Latter, Empire's editor-in-chief, chimed in... When I look at this list and think, "I can't believe this company is still […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] 'I Can't Believe These Companies are Still in Business' By Herb Greenberg We were chatting internally last week about a list of companies a short seller we know had mentioned. They included two old favorites – BlackBerry (BB) and Eastman Kodak (KODK). Without skipping a beat, Sam Latter, Empire's Editor in Chief, chimed in... When I look at this list and think, "I can't believe this company is still in business," I think Kodak and BlackBerry. It blows my mind that BlackBerry is a $5.5 billion market cap. It blows mine, too, and I think about it every time I see the "BlackBerry" sign on top of a building in Irvine, CA, as I drive up to Los Angeles. My wife even said one day, as we were speeding by, "They're still around?" Indeed, they are, but the question is... for how much longer? Revenue growth, after all, is going in the wrong direction. So is free cash flow, which seems to tap dance into negative territory repeatedly... Just today, the company stopped supporting any remaining old BlackBerry devices, saying, "They'll no longer reliably function." (People are still using BlackBerrys?) The truth is, BlackBerry is a turnaround eight years in the making that simply hasn't happened... and by all accounts, it isn't likely to... Once the company's core product got bludgeoned by the rise of Androids and iPhones, and after a revolving door of CEOs, BlackBerry pivoted to software... First, as a core software for cars, and then cybersecurity and the Internet of Things ("IoT"). Despite quarterly "beats" here and there, neither has set the world on fire. This is why there was always a Plan B, as is the case with tech companies that run out of options... If all else fails, it could start selling some of its 38,000 patents. The company announced it was doing just that last March when it announced first-quarter earnings, saying that it had "entered into an exclusive negotiation with a North American party" for the sale of some of its patents. That's three quarters ago, but even that hasn't gone as planned... A quarter later, in September, CEO John Chen said that the company had made "significant progress since our last earnings call, including preliminary agreement of the key items of the key terms of the deal." He went on to say he expected "to execute a definitive agreement this quarter," which ended November 30. Enter the third-quarter earnings call just a few weeks ago, and (I think you can see where I'm going with this) not only was there no definitive agreement, but Chen conceded... This process is taking much longer than we had hoped. And trust me, I share the frustration about the timeline. Negotiations are very close to a conclusion, and we are literally down to the last few important items now. Both parties are working hard to get this finished, and we expect to reach a definitive agreement very soon. We will provide shareholders [with] an update on progress in January. Meanwhile, the hope and hype of BlackBerry's cybersecurity/IoT software lives on, with fingers crossed that it'll become obvious with some kind of announcement at this week's Consumer Electronics Show in Las Vegas. --------------------------------------------------------------- Recommended Links: [On January 1, a historic market event officially began]( $7.1 trillion just started to shift in the markets. If you take advantage of this massive move right now, you stand to substantially grow your wealth over the next few years. Less-historic events have produced huge gains of 405%, 130%, 331%, 225%, 295%, and 244%, but this could be 10 times bigger than anything we've ever seen. [This urgent video explains everything you need to know](. --------------------------------------------------------------- [Crash Update from Whitney]( In his first message of the new year, former hedge fund manager Whitney Tilson weighs in on resolutions, the next big stock market crash, and [the one step you should take with your money TODAY to get ready](. --------------------------------------------------------------- Based on its stock, investors aren't holding their breath. After briefly getting swept up in meme mania early last year, BlackBerry's shares have struggled... Even at current levels, Morningstar analyst William Kerwin said recently that he felt the stock is still overvalued. This tells me that if BlackBerry follows the typical script for equally troubled companies... Unless there is some stock-juicing news soon, it's only a matter of time before it finds itself the focus of takeover rumors – either based on something the company says or something spread by desperate investors. And there appears to be no shortage of desperate investors, who likely got trapped by BlackBerry's stock in its moment as a meme... I was surprised to see hundreds of comments under recent commentary about BlackBerry on SeekingAlpha... many of them are highly critical of management. Without a patent deal, many investors are likely to be calling for Chen's head. But there's a catch: In 2019, his contract was extended until November 2023, which coincides (coincidentally or not) with the timing of the maturity of a convertible debt deal with Fairfax Financial. That deal has since been recast several times as BlackBerry's debt has been pared by a third. It's such a cozy deal, with Fairfax now owning 8% of BlackBerry, that Fairfax is deemed a related party. Fairfax, like BlackBerry, is headquartered in Canada and has been the company's financial backstop since Chen joined in 2013 when it led a $1 billion investment. Not only has Fairfax pocketed millions in interest payments, but it has watched the value of its shares – originally bought at an average price of $6.63 – rise by more than 40%. (On the flip side, as of last quarter, it said it also lost $106 million on convertible bonds, mostly tied to its BlackBerry investment.) All of this leads to the question: How does this saga really end? For Chen, it doesn't really matter. Based on his compensation alone, which guarantees a $1 million salary and a $2 million bonus, he stands to win no matter what. Source: BlackBerry's 2021 proxy And if the stock stays above $6.52, he is guaranteed another $85 million from the first tranche of options he received when he started, less if it falls. However, the big payoff is if the company is sold over the next two years. If that happens, Chen stands to walk away with a package worth $178 million... That's assuming the share price is at least $10.05. But even if it's less – and there's no saying it won't be – based on the structure of his compensation agreement, he still stands to be a huge winner. The only difference is revenues are a fraction of what they were eight years ago, and at 7 times sales, it's astronomically more expensive than it was. The only thing that makes less sense is that BlackBerry still exists. And now... for a Kodak moment... Like BlackBerry, Kodak's revenue has plummeted over the past eight years, but so has its valuation, and it now trades for around a third of sales. The company had a very brief moment in the spotlight shortly after the pandemic when its stock skyrocketed to briefly touching $60 from $2... literally overnight, on controversial news that Kodak had reached a deal with the government to produce ingredients for COVID-19 vaccines. Its stock came back to earth just as quickly, but the publicity helped wake up people to the fact that not only does Kodak still exist... but it's still public. A scan of the proxy suggests one reason it remains public might be because management is beyond well incentivized to stay. Not only is management well paid, with CEO Jim Continenza's base salary set at $1 million, but most tranches of stock options are vested and well in the money. (To be fair, his salary was temporarily cut by 25% last year in response to the pandemic.) But with a company that is also closely held, roughly half the shares are owned by insiders and related parties. That's a good thing because while revenue hovers around $1 billion, revenue growth continues to decelerate, especially against 2019. And like BlackBerry, free cash flow has trouble staying positive. The good news, it's less negative than it once was. The bad... it's still negative at a company that isn't growing and barely spends a dime on R&D. Kodak's main businesses these days are traditional and digital printing – it's the last remaining manufacturer of aluminum printing plates – and a segment it calls Advanced Materials and Chemicals. Once known almost exclusively for its film, the company no longer breaks out film, instead of lumping it in with chemicals. But that didn't stop Continenza from telling investors on Kodak's November earnings call... I'm pleased to report that we are seeing a resurgence in our film business. More people are shooting still film, and the motion picture industry is choosing film as the ideal medium for their productions. As a result, we are increasing the capacity of our film factory. Since then, the stock has fallen 20%. It's definitely not photo-worthy. Regards, Herb Greenberg January 4, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](