A Blackberry logo is seen through a cracked box in this photo illustration taken in the central Bosnian town of Zenica, September 24, 2013. REUTERS/Dado Ruvic

(Reuters) - BlackBerry Ltd is abandoning a plan to sell itself and instead will replace its chief executive officer and raise about $1 billion from institutional investors, including its largest shareholder, the smartphone maker said on Monday.

Shares of BlackBerry dropped 16.3 percent to $6.50 in premarket trading. The company said it would raise the money with a private placement of convertible debentures.

John Chen will be appointed executive chairman and will be interim CEO while the company looks for a new leader. He is the former CEO of Sybase, a database software company that SAP AG acquired in 2010.

Chen joined private equity group Silver Lake as senior adviser last year.

BlackBerry grew from a small technology startup into a multibillion-dollar company by pioneering on-the-go email, but it has lost much of its market share to Apple Inc's iPhone and devices that run Google Inc's Android software.

BlackBerry's largest shareholder, Fairfax Financial Holdings Ltd, will buy $250 million of the debentures. BlackBerry said the subordinated debentures would be convertible into common shares at $10 and have a seven-year term.

Fairfax announced a tentative $9-a-share offer for Waterloo, Ontario-based BlackBerry in late September. But Reuters said on Friday that Fairfax was struggling to finance the $4.7 billion bid.

(Reporting by Allison Martell and Euan Rocha; Editing by Janet Guttsman, Gerald E. McCormick and Lisa Von Ahn)