Prem Watsa expected to take BlackBerry private
Investment guru Prem Watsa has never shied away from a challenge, but he is no corporate raider, instead preferring to take the long-term view
Just over a year ago, Watsa said Research in Motion, now re-named BlackBerry, was a "Canadian success story", a good buy and a likely turn-around story despite market-share losses.
BlackBerry's fortunes have only deteriorated since then, but Watsa, chief executive of top BlackBerry shareholder Fairfax Financial in Toronto, is an old hand at looking wrong today and right tomorrow.
Watsa, 61, resigned from BlackBerry's board last week, seven months after joining, and is now expected to try to orchestrate a delisting of the company. Having spent US$880 million buying nearly 10 per cent of BlackBerry's shares at an average price of US$17, he is the largest shareholder and is sitting on a potential US$270 million loss.
Born in 1950 in Hyderabad, India, and trained as a chemical engineer, Watsa has a public profile that has at times bordered on the reclusive since he took over Fairfax in 1985.
For his first 15 years at the company he barely spoke to a reporter, and he only started holding real investor conference calls in 2001.
But what is clear is that he has never shied away from a challenge.
Indeed, Watsa had already shown his acumen by selling stock ahead of the 1987 market crash and buying Japanese puts - or rights to sell stocks at guaranteed prices - ahead of the Tokyo market's collapse in 1990.
Fairfax was one of a small group of institutions that bought a 35 per cent stake in Bank of Ireland from the Irish government during the height of the euro-zone crisis, and has earned a positive return on its investment.
Now Watsa is betting on a Greek recovery, declaring recently that "a bottom has been reached" in the decline of the European Union's worst economy.
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 he waited for the US mortgage industry to collapse.
The company's stock fell by 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 started to plough money back into shares, bringing another strong year in 2009.
Since their 2006 low of C$100 (HK$751), Fairfax's shares have more than quadrupled, and the stock is up 100-fold over 28 years.
Watsa's investment nous means his firm's stockmarket value of US$8.3 billion is now greater than BlackBerry's, which has crashed from a pre-credit-crunch height of US$55 billion to US$6 billion today.
Todd Johnson, of Winnipeg-based BCV Financial, which owns Fairfax debt, said: "Hearing the announcement from BlackBerry, accompanied by Prem's departure from the board, should indicate something will happen this time.
"We have a lot of respect for the investment acumen and long-term track record Prem Watsa has established at Fairfax."
Industry watchers think a sale to another handset maker or tech firm is unlikely.
Despite BlackBerry's determination to reinvent itself under chief executive Thorsten Heins, observers say a trade bid would have emerged by now if rivals had been truly interested since the sidelining of founder Mike Lazaridis and his business partner Jim Balsillie 18 months ago.
Watsa's move is being seen as the first tangible sign of a financial solution to BlackBerry's woes.
Peter Misek, an analyst at Jefferies Bank, said: "We believe Fairfax, along with other Canadian pension funds and banks, are considering taking BlackBerry private."
Mark Wiseman, chief executive of the Canada Pension Plan Investment Board, a BlackBerry shareholder, expressed support in a Bloomberg interview.
"It's safe to say that any large deal in Canada or elsewhere is something that we would make sure we took a hard look at," he said when asked about BlackBerry.
Wiseman's fund holds 0.2 per cent of BlackBerry. Should other home-grown pension investors choose to throw in their lot with Fairfax, between them they would control 17 per cent of shares, according to Misek.
Vic Alboini, an activist investor via his fund Jaguar Financial, who is hoping for a sale at US$15 a share, said: "To have Prem Watsa resign from the board is a very positive thing because it would give him the freedom to pull together a club deal."
Watsa is no corporate raider. He is a chancellor of the University of Waterloo, like Lazaridis before him, and describes BlackBerry's founder as a "good friend". Both men are known to want to protect the technology community that has grown up in Waterloo around BlackBerry.
Seeking to reassure clients over an investment in a company that has seen its global smartphone market share shrink to 3 per cent, Watsa explained BlackBerry's virtues to shareholders this year.
He listed the brand name, BlackBerry's respected security system, a "huge" patent portfolio, a subscriber base now totalling 76 million, and almost exclusive usage by governments in Canada, the US and Britain.
However, not all of Watsa's moves have been golden. Fairfax had to write off most of its investment in Winnipeg-based media company Canwest in 2009 as the company filed for bankruptcy protection.
It also wrote down a significant investment in publisher Torstar in 2008-09 and took losses on its holding of forestry company Abitibi Bowater.
Speaking last year, Watsa suggested investors looking for a short-term rebound in BlackBerry might turn out to 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."
Watsa preaches a long view that suggests it may be too early to assess his decision to take on a leading 10 per cent stake in BlackBerry. "Prem invests for the long term," said Paul Holden, an analyst at CIBC World Markets who follows Fairfax.
"He has held his major stake now for what I would say is a fairly short period of time relative to his investment horizon, so I would say it's probably too early to put any score on that investment."
Reuters, The Guardian