'Canada's Warren Buffett' has resigned from BlackBerry board and is expected to try to orchestrate stockmarket exit
The investment tycoon known as Canada's Warren Buffett is emerging as one of the leading bidders for BlackBerry, as analysts point to the likelihood of a private equity buyout for the beleaguered smartphone maker.
Prem Watsa, the boss of Toronto-based Fairfax Financial Holdings, resigned from BlackBerry's board on Monday, just seven months after joining, and is now expected to try to orchestrate the company's stockmarket exit.
Having spent an estimated $880m (£570m) buying nearly 10% of BlackBerry's shares at an average price of $17, the 61-year-old is the company's largest shareholder and he is sitting on a potential $270m loss.
But the Indian-born chemical engineer has made his fortune from championing apparently lost causes, having left his home for Canada with $8 to his name. Fairfax was one of a small group of institutions that bought a 35% stake in Bank of Ireland from the Irish government during the height of the eurozone 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 most troubled economy.
He was an early sceptic on the US property market, predicting the sub-prime housing collapse years before it happened, and used the proceeds of that bet to invest in the shares well before their recent rebound.
Watsa's investment nous means his firm's stockmarket value of $8.3bn is now greater than BlackBerry's, which has crashed from a pre-credit crunch height of $55bn to $6bn today.
"Hearing the announcement from BlackBerry accompanied by Prem's departure from the board should indicate something will happen this time on the strategic front," said Todd Johnson, a portfolio manager at Winnipeg-based BCV Financial, which owns Fairfax debt. "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 technology company is unlikely. Despite the company's determination to reinvent itself under chief executive Thorsten Heins, observers say a trade bid would have emerged by now if rivals were truly interested in the wake of the sidelining of founder Mike Lazaridis and his business partner Jim Balsillie 18 months ago.
Watsa's move is therefore being seen as the first tangible sign of a financial solution to BlackBerry's woes. "We believe Fairfax along with other Canadian pension funds and banks are considering taking BlackBerry private," said Peter Misek, an analyst at Jefferies bank.
On Friday, Mark Wiseman, the 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," Wiseman said when asked about BlackBerry.
Wiseman's fund holds 0.2% of BlackBerry shares. Should other home grown pension investors chose to throw in their lot with Fairfax, between them they would control 17% of shares, according to Misek.
"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," said Vic Alboini, an activist investor in BlackBerry via his fund Jaguar Financial, who is hoping for a sale at $15 a share.
Watsa is no corporate raider. He is a chancellor of the University of Waterloo, like Lazaridis before him, and has described 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 the investment in a company that has seen its global smartphone market share shrink to 3%, Watsa explained his thinking in his letter to shareholders this year.
Among its virtues, he listed the brand name, BlackBerry's respected security system, a "huge" patent portfolio, a subscriber base now numbered at 76m, and almost exclusive usage by governments in Canada, the US and the UK. Attributes which Watsa said made BlackBerry "Canada's greatest technology company".
Watsa has taken wrong turns in the past, most notably over media company Canwest, which eventually filed for bankruptcy. But his shares in Bank of Ireland, bought in 2011, have already delivered a handsome return.
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