1. He is proposing a leveraged buyout. Fairfax will contribute its 10% equity stake to a newco buyer in exchange for equity in the newco. That's $470 million of the $4.7 billion purchase price. I suspect he'll also get Mike Lazaridis on board, which is another ~6%. The bulk of the money will be bank debt. See the multiple Globe and Mail (and other) articles suggesting that PW wants to put $3 billion in bank debt on BBRY. That leaves another $1 billion in new equity that PW needs to raise from financial sponsors, pension funds, strategic partners or other institutional investors. The press reports indicate that pension funds have been lukewarm on investing in this unless a strategic partner is also involved, but that PW has been surprised at the PE interest in this transaction. Someone is going to have to bring management talent, as that is one aspect that is missing in this deal as compared to a traditional MBO, and that's what is apparently making the pension funds uncomfortable. At the end of the day, the newco buyer will have $750 in rollover equity from Fairfax and Lazaridis (or other consortium members), $1 billion in new cash equity from another source and $3 billion in bank debt. It will use that money to pay all of BBRY's current shareholders (other than the consortium shareholders) $9 per share in cash. These, of course, are rough numbers and the consortium will probably want to raise a bit more to make sure BBRY's financial position is strong (though more highly leveraged) after the buyout. Fairfax would end up owning more than 10% of the equity of a more highly leveraged BBRY.
2. It does not make a ton of sense and is completely unheard of to agree to a break-up fee in such a highly conditional offer. The only real explanation is that the special committee of the board thought that it had no choice but to agree to this, but it sure seems like a sweetheart deal for a former board member and Canadian investing superstar. BBRY is/was in a dire situation, but given its cash position and lack of debt, it wasn't exactly on the brink of insolvency. This decision could (read: will, at least it would in the U.S.) expose the special committee to litigation, though if this was a Delaware corporation rather than a Canadian company, I believe that Delaware law would respect the special committee's judgment in this matter. BBRY had previously explored strategic alternatives and was unable to find a buyer in that very public process, so it's not as if this was a hot asset over which many potential buyers were fighting. I suspect Skadden and Torys have looked closely at this issue. A second explanation (which is not mutually exclusive with the first) is that the special committee took PW at his word and believed that (notwithstanding the conditions in the LOI) PW would be there on November 4 with committed financing to sign a definitive agreement with a $9 per share cash purchase price. I believe (as do others on this board) that PW will do what he says he will to avoid damaging Fairfax's "brand". As cogitator99 mentioned on the previous post, it doesn't seem like PW/Fairfax can let this fall apart now. I bought a few shares earlier today for the arb based on this thesis. Do your own DD, as this could be flat-out wrong. I know that some people hold the opinion that Fairfax could simply lower its offer to $7 or $8 (pick a number) and close that deal and its brand/reputation would not take too much of a hit as the deal would still be remembered as a deal that saved an iconic Canadian company. I think the breakup value is conservatively $5 per share (others on the BBRY thread would disagree), so I don't think there is much more to lose here and I think PW's reputation and Fairfax's fair and friendly acquisitions brand is worth more than the possible savings that would be achieved from a lower purchase price. Many arbs will be unwilling or unable to take a position without a definitive agreement, so the "spread" (hard to call this a true spread without that definitive agreement) is likely to stay pretty wide unless there is a leak about a higher bid.
As an aside, this does not seem to me like a Warren Buffet-like move. I believe that if WB wanted this asset, he would have signed a definitive agreement over the weekend that PW signed a highly-conditional LOI. That would be moving incredibly fast, but I think WB would have gotten it done. Though BBRY is not the type of asset for which WB is looking (I'm confident it would be in his "too hard" pile).
