Fairfax Financial Holdings Ltd.’s decision to roughly double its stake in Research In Motion Ltd. gives it a significant amount of sway in determining the BlackBerry maker’s fate.
Toronto-based Fairfax has been buying up shares of RIM at what it sees as near-rock-bottom prices this year, and has now amassed a holding that amounts to 9.9 per cent of the beleaguered technology giant. The stake makes it RIM’s largest shareholder.
Fairfax CEO Prem Watsa joined RIM’s board in January, after being approached by co-founder and current director Mike Lazaridis, who owns 5.1 per cent of of the company according to regulatory filings.
Mr. Watsa now stands to play a larger role in RIM’s future. Fairfax’s stake gives it, and RIM’s board, a bit of new muscle with which to fend off any hostile offers for RIM or unwanted shareholder activism. But, importantly, Fairfax also has more leverage now in discussions with any potential partners or friendly buyers for RIM or certain of its assets, as the Waterloo, Ont.-based firm carries on with the strategic review that its investment bankers are carrying out.
There has been much speculation about a potential takeover of RIM since the company confirmed that it had hired investment bankers to help it conduct a strategic review. Mr. Watsa said Fairfax is not banking on a takeover of RIM, but rather is making its investment based on the firm’s management and the potential of the BlackBerry 10 operating system slated for release in January.
Mr. Watsa said he’s looking at an investment horizon of three to five years.
Whatever the outcome, Mr. Watsa, who has been dubbed the Warren Buffett of the north, has a big incentive to ensure that RIM’s shareholders come out ahead: having joined the board and spoken very publicly about RIM’s prospects, he’s putting his reputation on the line. “This company has a tremendous brand name that is recognized worldwide,” Mr. Watsa told The Globe and Mail. “It has 78 million users, 56 million BlackBerry Messenger users, patents and a worldwide network.”
He added that RIM has a liquid balance sheet, with $2.2-billion in cash and no debt as of the end of the last quarter.
Fairfax’s stake was worth $361.7-million after markets closed Monday, with the stock up 1.46 per cent to $6.97 on the Toronto Stock Exchange. RIM’s stock has been on a long decline since early last year, when it traded at close to $70 a share.
Mr. Watsa said the new purchase reduces the average cost of RIM shares for Fairfax, and noted famed investor John Templeton’s maxim: Invest at the point of “maximum pessimism.”
“We don’t know if RIM has reached that point, but we figure it’s pretty close,” he said.
Fairfax had already quietly become Research In Motion’s fourth-largest shareholder by last September, at which point it owned 2.25 per cent of the firm, a smaller stake than California-based Primecap Management as well as RIM co-founders Jim Balsillie and Mr. Lazaridis. In January, Fairfax disclosed that it had upped its stake to 5.12 per cent.
In Primecap’s last disclosure in February it said that it owned 5.42 per cent of RIM.
Mr. Balsillie’s last disclosure said that he, as with Mr. Lazaridis, also owns 5.1 per cent.
Todd Coupland, an analyst with CIBC, said Fairfax’s decision to increase its stake is a constructive move for the technology giant when it comes to protecting itself from unwanted takeovers or activism. "Control is still in the market but it’s certainly helpful," said Mr. Coupland, who feels that a hostile takeover is not likely because technology companies are largely a function of their talent, and a buyer would want to ensure that key people stay.