Prem Watsa is always happy to zig when the rest of the market zags. That tested contrarian approach is why the chairman and chief executive officer of Fairfax Financial Holdings Ltd. is willing to put more money into newspapers, despite being burned by media investments in the past.
At a festive annual meeting Thursday in Toronto - the company handed out red Fairfax baseball caps to celebrate its 25th birthday - Mr. Watsa won praise from shareholders for a solid year but received more than a few questions for his continued interest in print media.
Fairfax owns 19 per cent of the non-voting shares of Torstar Corp., and has lost money on the holding, and investment banking sources say Mr. Watsa and his team are willing to backstop the publisher's bid for newspapers owned by CanWest Global Communications Corp., another losing stock position for Fairfax in recent years. CanWest's 46 newspapers are being sold by the company's creditors.
Mr. Watsa explained that while Fairfax would be cautious after being "burned" on media investments, the strong cash flow from newspapers made them worthwhile holdings, at the right price.
"Newspapers are not going to be priced like they were say five years ago or 10 years ago, but perhaps they're worth a little more than what they are today," the 59-year-old CEO said.
"We have opportunities to see … if we want to participate in either the [TV broadcast]media assets [which were purchased by Shaw Communications in February]or the newspaper assets," he said in the annual meeting. "You might say, 'Once bitten, twice shy. Don't go close to it.' And, of course, we take that into account."
The deadline for a second round of bids for CanWest's newspapers is next week, and senior creditors owed $950-million hope to have a buyer for the chain selected by July. In addition to satisfying senior lenders, any company buying CanWest's newspaper division will likely need to strike a deal with unsecured lenders, a collection of hedge funds that hold debt with a face value of $450-million.
Fairfax is one of the few financial companies to thrive during the market meltdown, in large part due to a value approach that saw the team take sizable stakes in out-of-favour assets.
The insurer made $87-million last year buying the deeply distressed debt of Nortel Networks. Fairfax put $316-million into four companies that needed quick financial fixes: H&R REIT, Canadian Western Bank, Mullen Group Ltd. and GMP Securities. Those convertible debenture and preferred share positions were worth $591-million by the end of the year.
While the Fairfax head office in Toronto runs portfolios, the company is spreading its insurance operations internationally to gather assets.
On Thursday, Mr. Watsa highlighted expansion opportunities in India and Brazil, one of South America's fastest-growing economies. Last fall, the company also acquired a 15-per-cent stake in Alltrust Insurance, a Chinese financial services firm.
With files from Canadian Press