Great article profiling Prem Watsa, a dubbed ‘Warren Buffett of Canada’, and his background. Watsa runs Fairfax Financial and is based in Canada, and for those who have not been introduced to Mr. Watsa, the article does a great job of explaining his path and eventual rise to Investing Guru status.
Like many popular value guys, Watsa ‘missed out’ out on the tech bubble and pre-crisis housing party, only to make large sums once the house of cards came crumbling down, making Watsa looking prescient. A noted contrarian, Watsa now has his eyes set on acquiring Blackberry (BBM). YES, that Blackberry- the one riddled with multiple setbacks and total loss in dominance of the mobile phone market once the Apple iPhone was introduced. As the company has announced various product flops and misfires, Fairfax had been adding to its stake in company stock since 2011, eventually reaching 5%.
Interestingly enough, Watsa has always shied away from tech companies, yet now finds himself trying to save one. With many questioning the company’s future, and others stating that the company should break itself apart, Watsa has put his faith in a company quickly burning through its cash stockpile. For many value investors, Blackberry would end up in the “Too Hard” pile- changing technologies and an uncertain future adding to its lack of want as a safe investment and perhaps revealing the inner workings of a falling knife. The story could end up very badly for both Mr. Watsa and BBM shareholders. In the meantime, however, it will be very interesting watching a smart man tackle a floundering company.
“The man with nothing to lose”
Watsa tries to save a Canadian icon
“Looking over Fairfax’s history, it’s evident the firm has shied away from technology companies. The fast-moving industry generally makes it too risky for long-term value investors. That’s why his pursuit of BlackBerry is surprising. In 2011, Fairfax held a 2.25% stake in the company. Watsa spoke to Canadian Business that November about his investment, saying that he was incredulous the company had fallen out of favour with investors when it still earned billions in revenue and kept a large cash pile on its balance sheet. He felt the PlayBook tablet, widely considered a flop, could be saved. (BlackBerry has all but abandoned it.) He also praised co-CEOs Jim Balsillie and Mike Lazaridis. “We’re shareholders because of Mike and Jim,” he said. “Imagine putting someone else [in].…That’s risky. I wouldn’t invest in a company that did that.” Two months later, Lazaridis and Balsillie resigned as co-CEOs, Thorsten Heins took over, Watsa joined the board and Fairfax raised its stake to more than 5%.”
“With all of these challenges and uncertainties, is BlackBerry really worth $9 a share today? As a value investor, Watsa is primarily concerned with getting a good price. In making a bid for the entire company, the Fairfax consortium gets access to BlackBerry’s cash pile—$2.6 billion as of the last quarter, though its quickly declining. That’s a smart move from his perspective, since the cash can be used to pay back any loans required to finance the buyout, limiting the cost for Fairfax and its partners. Analysts are nevertheless divided on the company’s worth. One wildcard is BlackBerry’s patent portfolio. Gus Papageorgiou at Scotiabank wrote recently the company’s 5,136 patents could be worth $2.25 billion, reasoning that BlackBerry has filed almost as many patents as Apple during the smartphone boom, and these patents have a lifespan of roughly 12 years. That’s partly why he values BlackBerry at more than $10 a share, suggesting Watsa is getting a steal.”
It seems as if Fairfax has not been able to muster up enough support for its takeover of Blackberry. However, Fairfax has placed about $1 billion in financing for the organization, along with a group of institutional investors. In the meantime, current CEO Thorsten Heins has stepped down, and is being replaced by John Chen, who is being described as a turnaround specialist.
The Blackberry story is not over, yet, as Watsa and crew continue their support of the company.