Fairfax Financial Holdings Ltd. (FFH), the insurer run by Canadian investor Prem Watsa, doubled its stake in Research In Motion Ltd. (RIM) in a vote of confidence in the BlackBerry maker after Watsa joined the company’s board.
Fairfax owns 26.85 million RIM shares, up from 11.8 million shares in September, according to a regulatory filing today. The company raised its stake to 5.12 percent, worth about $451 million at today’s closing price.
Watsa was named a RIM director on Jan. 22 as part of a management shakeup that included the replacement of co-Chief Executive Officers Jim Balsillie and Mike Lazaridis with former operating chief Thorsten Heins. The company is rebuilding its product line to try to stem recent market share losses to Apple Inc. (AAPL)’s iPhone and devices that run on Google’s Android platform.
“This is a vote of confidence in the current trajectory of the company or he thinks that there’s some value here that can be unearthed,” said Adnaan Ahmad, an analyst at Berenberg Bank in London. “Watsa is extremely well-respected, kind of like the Warren Buffett of Canada, so the bottom line is that the stock today should be up on the back of this.”
Shrinking Market Value
RIM rose 3.3 percent to $16.80 at the close in New York. The stock, which fell 75 percent last year, lost more value this week after Heins told investors there isn’t “drastic change needed.”
RIM’s share of the smartphone market tumbled to 11 percent in the third quarter of 2011, from 21 percent two years earlier, according to Gartner Inc.
The largest shareholder in RIM is Primecap Management Co., with a 5.5 percent stake, according to data compiled by Bloomberg. Lazaridis has a 5.4 percent stake in the company and Balsillie owns 5.1 percent, the data shows.
“This is a huge psychological boost,” said Ian Nakamoto, director of research at MacDougall MacDougall and MacTier Inc. in Toronto, whose firm oversees C$4 billion for clients, including RIM shares.
Fairfax has said RIM is an attractive investment because the company is trading at less than book value with free cash flow, yet still has a growing subscriber base and increases in revenue.
The stock purchases were made by Watsa, Fairfax and about a dozen of the Toronto-based company’s subsidiaries, according to the filing.
Toronto-based Fairfax bought 6.5 million shares on Jan. 25 and another 7.6 million shares yesterday, according to the filing. That means the company has spent about $230 million buying RIM shares in the past two days, based on Nasdaq prices for those dates.
Born in Hyderabad, India, Watsa has built Fairfax by investing in the assets of out-of-favor securities, and said this week he may increase his stake in Waterloo, Ontario-based RIM.
Watsa, 61, founded Fairfax in 1985 and has patterned his style of value investing after Warren Buffett, recommending shares of companies such as Wells Fargo & Co., Johnson & Johnson, Kraft Foods Inc. (KFT) and US Bancorp. (USB)
Fairfax benefited from declines in U.S. banks during the financial crisis, purchasing credit-default swaps on lenders. The swaps, instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt, led to investment gains of $2.72 billion in 2008.
Watsa has shifted in recent years to investing in U.S. municipal bonds backed by Buffett’s Berkshire Hathaway Inc. (BRK/A)