Prem Watsa (Trades, Portfolio)’s Fairfax Financial Holdings (TSE:FFH) on Wednesday agreed to purchase $250 million in 6% unsecured subordinated convertible debentures of troubled smartphone maker BlackBerry (NASDAQ:BBRY). The debentures have a maturity date of Nov. 13, 2020 and are convertible to common shares at a price of $10 per common share. The transaction will take place sometime on or before Jan. 16, 2014.
Fairfax is purchasing the debentures as the exercise of an option in connection with its $1 billion debt investment in BlackBerry in November 2013. If converted, the original $1 billion in debentures would give Fairfax 76,854,700 shares of BlackBerry, or 12.2% of its shares outstanding. Converting the new debentures to be held by Fairfax would give him a total of 101,854,700 shares, or 17.6% of the company.
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Fairfax and BlackBerry have an agreement signed on Nov. 4 that Fairfax will not own more than 19.9% or less than 9.9% of BlackBerry’s common shares.
The release announcing the debenture purchase also stated that Fairfax may sell some of its BlackBerry holding. “Fairfax intends to sell Common Shares over time in order to rebalance its ownership in BlackBerry, subject to the above-noted restrictions,” Fairfax said.
BlackBerry’s stock price los 26% over the past 12 months and is trading around $8.84 a share on Friday. Since the start of 2014, it has gained almost 19%.
For the three months ended Nov. 30, BlackBerry announced revenue down 24% from the previous quarter and down 56% for the same period the previous year, to $1.2 billion. The company sold 1.9 million BlackBerry smartphones, a decline from 3.7 million sold the previous quarter. Its net loss also steepened to $4.4 billion, compared to $965 million the same period the previous year.
BlackBerry ended its last quarter with $3.2 billion in cash, cash equivalents, short-term and long-term investments.