Famed investor and builder of Canada’s 47th largest company, Fairfax Financial Holdings (FFH), is branching out by purchasing a technology company. Smartphone maker BlackBerry Inc. (BBRY) announced today that Prem Watsa’s Fairfax has signed a letter of intent to pay shareholders $9 per share in cash, or about half of book value of $18 per share, to acquire the company at a total cost of $4.7 billion.
BlackBerry has until Nov. 4 to negotiate the details of the transaction with Fairfax and shop for a better offer.
BlackBerry’s book value history:
The day before the offer BlackBerry traded for over $10. Today shares trade at $8.77, up around 0.40%.
Watsa said: “We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees. We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.”
Speculation abounded earlier in August about what Watsa’s next move would be after he stepped down from BlackBerry’s board Aug. 12. He said he did not want to create a conflict of interest while the company sought a potential buyer.
"I continue to be a strong supporter of the Company, the Board and Management as they move forward during this process, and Fairfax Financial has no current intention of selling its shares,” Watsa said when he stepped down.
BlackBerry is currently Watsa’s largest holding, at 21.8% of his total assets managed. His total ownership is 10% of the company’s shares outstanding.
BlackBerry announced preliminary fiscal second quarter results on Sept. 20. The company said it expects to report revenue of $1.6 billion and 3.7 million smartphones sold. In last year’s second quarter its revenue was $2.9 million, and it sold 7.4 million smartphones.
The net loss for the company is expected to be in the range of $250 million to $265 million. Adding inventory and restructuring provisions, the GAAP net loss will fall between $950 million to $995 million.
BlackBerry will end the quarter with approximately $2.6 billion in cash and cash equivalents, with no debt.
Along with the results, BlackBerry announced its restructuring plans, including the elimination of 4,500 jobs and cutting of expenditures by approximately 40% by the first fiscal quarter of 2015.
Watsa celebrated finding what he called “Canada’s greatest technology company” trading so cheaply in his 2012 annual letter. He contrasted BlackBerry with severely overvalued companies with no sales during the tech boom of the 2000s, many of which promptly went bankrupt. At its 2011 low, BlackBerry traded for roughly $6.50 per share – nearly one-third of book value, slightly above cash per share and 95% off its high stock price.
Watsa was thrilled to be buying at “the point of maximum pessimism” he said in the letter, paying an average of $17 per share for his 10% stake.
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