Prem Watsa, the Canadian investor who made $1.15 billion betting against U.S. real estate, is now trying to reverse his investment losses on BlackBerry Ltd. by taking the smartphone maker private.
Watsa, 63, who models his investment strategy after Warren Buffett, said yesterday his Toronto-based insurance firm Fairfax Financial Holdings Ltd. is leading a group that plans to bid $4.7 billion for BlackBerry.
As the largest shareholder of the Waterloo, Ontario-based company, Watsa is trying to match his investment gains from the U.S. housing crisis and the Bank of Ireland, while avoiding the losses from other bets including Canadian media companies Torstar Corp. and CanWest Global Communications Corp.
“He’s capable of doing some really smart things, but he’s also capable of doing some really dumb things and I don’t know which one this is,” said David Baskin, president of Baskin Financial Services Inc. in a telephone interview from Toronto yesterday. His firm manages about C$535 million ($520 million). “Time will tell. Certainly I wouldn’t be lining up to do it.”
The value of the tentative bid for BlackBerry would be the biggest yet led by Fairfax. The insurance holding company, founded by Watsa in 1985, said today it would buy back as much as 5 percent of its stock over the next 12 months.
In the BlackBerry transaction, the insurer won’t provide additional financing outside of the equity stake it currently owns, expecting its partners to contribute the remaining debt and equity, Watsa said in a phone interview yesterday. The company hasn’t arranged financing for the cash offer.
Confident in Bid
The insurance company holds 51.9 million BlackBerry shares worth $457.4 million as of yesterday’s closing share price of $8.82 in New York, data compiled by Bloomberg show. BlackBerry is Fairfax’s largest investment, followed by drugmaker Johnson & Johnson, and Montreal-based Resolute Forest Products Inc., according to a June 30 filing.
“We wouldn’t put our name on the line and we wouldn’t do this unless we were very confident,” Watsa said in the interview.
Watsa declined to name the other investors in the funding group, saying that it will have strong Canadian backing. Michael Lazaridis, the co-founder of the Canadian mobile company and the second-largest BlackBerry shareholder, isn’t involved in the process yet, Watsa said.
Fairfax has announced at least 17 investments including acquisitions in the past four years, according to data compiled by Bloomberg. Recent deals have included bids for retailer William Ashley China Ltd. and restaurant chain Prime Restaurants Inc. which owns the Bier Markt and Casey’s Bar and Grill chains in Canada.
“Watsa’s strategy is well outside the norm,” David Havens, a credit-desk strategist at Imperial Capital LLC said in a telephone interview yesterday. “There’s been a lot made about Prem being the Warren Buffett of Canada. His track record has been terrific and his strategy very well might pay off in spades, but it’s riskier than most insurance companies.”
Watsa, who hails from Hyderabad, India, has led the company through hits and misses, acquiring everything from a pet insurer to a cremation home and stakes in media companies in Canada.
Watsa’s investment in BlackBerry hasn’t panned out so far. He agreed to double his stake in January 2012, and has paid an average of $17 a share for his 10 percent stake. The shares closed today at $8.53 in New York, a decline of 50 percent and below the $9 a share offer price.
Watsa was named a director of the mobile phonemaker in January 2012 as part of a management shakeup that included the replacement of co-Chief Executive Officers Jim Balsillie and Lazaridis with former operating chief Thorsten Heins.
Fairfax’s profit before one-time items reached a record $1.69 billion in 2008 as the company recorded investment gains on credit-default swaps on U.S. banks and insurers. The swaps became more valuable as the subprime mortgage market collapsed and banks began to fall. Profit was $541 million last year.
Fairfax shares gained 25 percent in the last five years, compared with a 2.2 percent gain in the Standard & Poor’s/TSX Composite Index. (FFH) Fairfax rose 1.1 percent to C$420.45 yesterday in Toronto, for a market value of C$9 billion.
Buffett, 83, built Omaha, Nebraska-based Berkshire Hathaway Inc. during the last five decades into a $285 billion business through stock picks and acquisitions. Once a failing textile maker, the business now has operations in insurance, railroads, energy, manufacturing and retail. Its equity portfolio was valued at $103.3 billion at the end of June. Some of Berkshire’s largest stock holdings include Coca-Cola Co., Wells Fargo & Co. and American Express Co.
Book value, the measure of assets minus liabilities that Buffett uses as a yardstick for his performance, has advanced about 20 percent annually from 1965 through last year, according to the company’s most recent annual report. That’s about double the pace for the Standard & Poor’s 500 Index, including dividends. The firm gained 35 percent in the last five years.
Although insurance and reinsurance contributed to about 83 percent of revenue last year, Fairfax also invests in out-of-favor and eclectic assets. It doubled a 2011 investment in Bank of Ireland (BKIR), the country’s largest lender, while writing down losses tied to Canadian newspaper publishers Torstar and CanWest.
“I wouldn’t want to be investing against him,” said Havens, who’s been a BlackBerry user for a decade. Watsa “does seem to have a sixth sense in some regard towards some of these investments. He has misses, but he seems to have a lot more hits than misses.”
Bank of Ireland
In July 2011, Fairfax Financial, WL Ross & Co., and Fidelity Investments were among five institutions buying a combined 35 percent stake in Bank of Ireland from the government. Fairfax Financial holds about a 9.3 percent interest in the lender, according to data compiled by Bloomberg.
Fairfax is also betting on a Greek recovery. In June it raised its interest in Eurobank Properties Real Estate Investment Co., a commercial property firm owned by Eurobank Ergasias SA, Greece’s third-largest lender, to 42 percent from 19 percent, expecting high returns as the economy improves there.
“When you’re investing in Fairfax you’re investing in Prem, there’s no question about that,” Baskin in Toronto said. “Either he succeeds or he fails.”
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