BlackBerry rescue tycoon's latest test

Prem Watsa is taking a Buffett-style long-term view on the US$4.7 billion bid led by Fairfax Financial for the troubled smartphone maker

PUBLISHED : Tuesday, 24 September, 2013, 9:05am
UPDATED : Wednesday, 25 September, 2013, 1:56am

Speculation that Prem Watsa, the man some call Canada's Warren Buffett, would launch a bid for BlackBerry started to swirl as soon as he stepped down from the troubled smartphone maker's board last month.

Six weeks later, he has delivered, beginning a rescue project he once said could take four or five years.

Just over a year ago, Watsa said BlackBerry was a "Canadian success story", a good buy and a likely turnaround story even though its market share was tumbling.

BlackBerry's fortunes have only deteriorated since then, with the latest blow coming last Friday, when it said it would cut more than a third of its workforce as it retreats from the consumer market in favour of its traditional strength - serving businesses and governments.

But Watsa, the chief executive of Fairfax Financial, the top BlackBerry shareholder, is an old hand at looking wrong today and right tomorrow.

On Monday, BlackBerry said it had agreed to be acquired by a consortium led by Fairfax for US$4.7 billion, a move observers said could allow the company to put its house in order out of the public eye.

Fairfax, both an insurance holding company and Watsa's investment vehicle, was on the losing end of bets against the market in the mid-2000s as Watsa waited for the mortgage industry in the United States to collapse.

The company's stock fell 50 per cent between mid-2003 and mid-2006 as Watsa's purchases of credit default swaps flattened profits, while rivals feasted on a housing-fed bull market.

But when the market began to weaken in 2007, Fairfax began notching up investment gains, pulling in billion-dollar profits in 2007 and 2008. Then with markets still reeling and other investors licking their wounds, Watsa ploughed money back into equities, bringing another strong year in 2009.

Since their 2006 low of C$100 (HK$752), Fairfax's shares have more than quadrupled.

Indeed, Watsa had already shown his investment chops by selling stock ahead of the 1987 stock market crash and buying Japanese puts - rights to sell stocks at guaranteed prices - before the Tokyo market's collapse in 1990.

Like Buffett, an investor Watsa says he admires, Watsa preaches a long view that suggests it may be too early to assess his decision to buy into BlackBerry.

As it is, BlackBerry has not been a turnaround story under Watsa's watch. Since January last year, a period when Fairfax has raised its stake in the company from a little more than 2 per cent to just under 10 per cent, BlackBerry's share price has slumped.

Watsa stepped down from BlackBerry's board last month, citing a potential conflict of interest, as the company said it was exploring its sale and other options.

Watsa, born in 1950 in Hyderabad, India, has a public profile that has at times bordered on the reclusive since he took over Fairfax in 1985.

Not all Watsa's moves have been golden. Fairfax had to write off most of its investment in Winnipeg-based media firm Canwest in 2009 as the company filed for bankruptcy protection. It also wrote down a significant investment in publisher Torstar in 2008-09.

Watsa suggested last year that investors looking for a short-term rebound in BlackBerry might be disappointed. "Is it going to turn around in three months, six months, nine months? No," he said. "But if you're looking four, five years … we make investments over four or five years."