Fairfax Financial Holdings (TSX:FFH, Financial) CEO Prem Watsa (Trades, Portfolio) acquired 24.1% of shipping company Seaspan Corp. (SSW, Financial) for his first large purchase of the year.
Watsa obtained 38,461,539 warrants to purchase shares of the company, which have an exercise price of $6.50 and an exercise term of seven years from Feb. 14. Seaspan’s shares traded for around $6.80 on Tuesday, after diving 64% over the past three years. The company also issued to Watsa’s company $250 million in 5.5% senior notes due in 2025.
The holding’s size, at 16.58% of the portfolio, ranks it as the third of Watsa’s biggest minority stakes under BlackBerry (BB, Financial) and Resolute Forest Products (RFP, Financial).
Based in Hong Kong, Seaspan Corp. owns and manages containerships that it charters out to major shipping lines on long-term periods at a fixed rate. The $841.66 million market cap company owns more than 100 vessels.
Watsa’s investment vehicle, Fairfax Financial Holdings, resembles Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway in that the insurance conglomerate purchases entire companies as well as invests the insurance “float” in stakes in public companies.
Seaspan has a connection to Berkshire Hathaway – its chairman is David Sokol, former chairman and CEO of MidAmerican Energy Holdings Company, a Berkshire Hathaway subsidiary. Sokol left the company in 2011 over questions concerning share purchases he made.
The company’s share price has suffered in recent years due to business difficulties and a financial crunch in the industry as supply surpassed demand, plunging shipping rates. Revenue in the third quarter dipped 6% to $211.01 million from $224.88 million. The decline primarily resulted from lower average charter rates for short-term charters, partially offset by the delivery of newbuilding vessels in 2016 and 2017.
"Maintaining a strong and flexible balance sheet remains a priority for Seaspan,” Sokol said in the company’s third-quarter release. “Over the past four months, we have repaid over $200 million in secured credit facilities and have grown our unencumbered fleet to 19 vessels. Overall, we remain well positioned to capitalize on growth opportunities that may arise during this period of improving industry fundamentals."
Seaspan has a price-equity ratio of 14.46, price-book ratio of 0.46 and price-sales ratio of 0.91.
Watsa has ploughed funds into beleaguered companies of late, particularly BlackBerry Ltd. (BB, Financial). The company that once revolutionized the smartphone industry was trading in the low teens when Watsa bought about 10% of it in 2012. Before that, it had soared to $100 a share in 2008. After stagnating under $10 for several years, the stock rose almost 81% over the past year to trade around $12.38 Tuesday.
Taking an activist approach at the company, Watsa joined the company’s board in January 2012 and continues to serve as its lead director and chair of the Compensation, Nomination and Governance Committee of the Board of Directors.
Watsa founded Toronto-based Fairfax Financial in 1986 and has achieved 19.4% compound annual growth in book value through 2017, rivaling Warren Buffett (Trades, Portfolio)’s 19.1% record at Berkshire Hathaway since 1965.
See Prem Watsa (Trades, Portfolio)'s portfolio here.
