The company will also replace Chief Executive Officer Thorsten Heins, while John Chen, a director in Wells Fargo and The Walt Disney Company, will serve as interim CEO, BlackBerry said in a statement.
Former director Prem Watsa, whose Fairfax Financial had bid for BlackBerry, will return as Lead Director. Watsa-led Fairfax Financial, the firm that signed a tentative agreement in September to acquire BlackBerry for USD 4.7 billion, will invest USD 250 million in the convertible debentures, BlackBerry said. Fairfax holds 10 per cent in the company. BlackBerry shares fell as much as 18 per cent to USD 6.40 on the Nasdaq and later traded at USD 6.84.
The struggling smartphone maker has entered into "an agreement pursuant to which Fairfax Financial Holdings and other institutional investors will invest in BlackBerry through a USD 1 billion private placement of convertible debentures," the company said in a statement. "The transaction is expected to be completed within the next two weeks," it said.
Heins, who was appointed as BlackBerry President and CEO in January 2012, will step down and Chen will serve as interim CEO pending completion of a search for a new Chief Executive Officer, it added. "Upon the closing of the transaction, John S Chen will be appointed Executive Chair of BlackBerry's Board of Directors and, in that role, will be responsible for strategic direction, strategic relationships and organisational goals of BlackBerry," the statement said.
Watsa will be also be appointed Chair of the Compensation, Nomination and Governance Committee. "I look forward to rejoining the BlackBerry board and to working with the other directors and management team, under John Chen's leadership, to shape the next stage of BlackBerry's strategy and growth," Watsa said.
Fairfax is a long-time supporter, investor and partner to BlackBerry and with this investment, reinforces its deep commitment to the future success of the company, he added. The financing provides an immediate cash injection on terms favorable to BlackBerry, enhancing its substantial cash position, Chair of BlackBerry's Board Barbara Stymiest said. The company had cash of USD 2.6 billion as of August 31.
"Today's announcement represents a significant vote of confidence in BlackBerry and its future by this group of pre-eminent, long-term investors. "The BlackBerry board conducted a thorough review of strategic alternatives and pursued the course of action that it concluded is in the best interests of BlackBerry and its constituents, including its shareholders," Stymiest said.
The announcement marks the conclusion of the review of strategic alternatives previously announced on August 12, BlackBerry said. The company said institutional investors will subscribe for USD 1 billion aggregate principal amount of 6 per cent unsecured subordinated debentures, which are convertible into common shares of BlackBerry at USD 10 per common share.
The amount is a 28.7 per cent premium to the closing price of the firm's common shares on November 1, it added. "The debentures have a term of seven years. Based on the number of common shares currently outstanding, if all of the USD 1 billion of debentures were converted, the common shares issued upon conversion would represent approximately 16 per cent of the common shares outstanding after giving effect to the conversion," BlackBerry said.
The closing of the transaction is subject to customary conditions, including approval from the Toronto Stock Exchange, it added. "Pursuant to the transaction agreement, investors have an option to purchase up to an additional USD 250 million principal amount of debentures within 30 days following closing.
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