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Prem Watsa Buying BlackBerry at Half of Book Value

September 23, 2013 | About:

Holly LaFon

255 followers
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:

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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.

See Prem Watsa’s portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Prem Watsa.

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Rating: 3.7/5 (16 votes)

Comments

kfh227
Kfh227 premium member - 11 months ago


This shareholder is voting against the deal. Total rip off.
brett626
Brett626 - 11 months ago
Prem is a gambler who made a bad bet. . Is he running a casino or an insurance company?
AlbertaSunwapta
AlbertaSunwapta - 11 months ago
^ read about Buffett and the salad oil scandal
batbeer2
Batbeer2 premium member - 11 months ago
- double post, deleted
batbeer2
Batbeer2 premium member - 11 months ago
Is it me or is BBRY trading below $8 with a bid from Watsa at $9 next month.

- Is the DD going to turn up anything he doesn't already know?

- Is his word not good?

- Is his money not good?

buynhold
Buynhold - 11 months ago
@Batbeer, Watsa has not lined up financing for the deal yet (Fairfax is not contributing any of its own money); guess the market is skeptical that lenders will provide the needed cash - $2.6 billion can be backed by BBRY's cash, but the remaining $2.1 billion would be collateralised against its other assets (if needed). Due diligence ends in 6 weeks, but the closing may not be for a few months.

Looks like Watsa is paying liquidation value or thereabouts. I have no idea of what the upside looks like. Not sure what strategy they will employ to monetize the assets and what the chances of its success are.
batbeer2
Batbeer2 premium member - 11 months ago
>> Watsa has not lined up financing for the deal yet

Good to know, thanks!
MritikCapital
MritikCapital - 10 months ago
Prem Watsa has been an owner of BBRY all the way from $70/share to $9 now. I suspect his cost basis is $18/share. The business has deteriorated continuously while he has continued to average down. He had also hedged a lot of his equity holdings including in 2011 when stocks were cheap. I see his 30 year record but I do not understand his investment philosophy.

I wish him luck with BBRY liquidation or turnaround. This BBRY experience once again reinforces the fact that sticking to predictable businesses with economic moats and staying away from fast changing industry technology is best.
AlbertaSunwapta
AlbertaSunwapta - 10 months ago
^ Like Buffett, Watsa has made mistakes over the years. Watsa's moves though seemed to be much riskier, hence I've periodically traded into and out of FFH.

His hedging equities seems reasonable in light of his belief/assessment or whatever that the deflation that hit the world's second largest market (Japan) could hit North America. Of course he may be wrong but as in 2007/08/09 he's protecting his shareholders.
swnyc2
Swnyc2 - 10 months ago
Batbeer2,

FYI, I ran across an article here that attempts to quantify BBRY based on various scenarios and their probability of happening.

Perhaps, not so surprisingly, these experts conclude the stock is worth about $8 per share, which is about where it sits today. I think it's very likely that the deal with go through at $9, but I have no experience to justify this opinion, only my gut feeling.

I'd be curious if anyone has any thoughts / experience on how frequently these kinds of deals go through? Or, how to determine the likelihood of obtaining a bridge loan in this situation?

AlbertaSunwapta
AlbertaSunwapta - 10 months ago
This was interesting... Note the blackberry comments.

Bolstering a Phone’s Defenses Against Breaches - NYTimes.com

http://mobile.nytimes.com/2013/10/14/technology/bolstering-a-phones-defenses-against-breaches.html

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