For someone who built an empire while dodging the media’s spotlight, Prem Watsa is taking an unusually public role by positioning himself at the heart of Research In Motion’s attempted revival.
One of Canada’s most respected value investors, Indian-born Mr. Watsa is notorious for his reticence. After taking the helm at Fairfax Financial Holdings and striking its initial takeover deal in 1985, he didn’t speak to a reporter for more than 15 years. He never even chimed in on an investor conference call until 2001.
Now Mr. Watsa is at the centre of Research In Motion’s first major shakeup since Mike Lazaridis founded the company in 1984. Rather than shun the spotlight, Mr. Watsa is running to it.
He is joining the smartphone company’s board – an unusual move for the publicity-shy investor who normally shuns such involvements. He is also hinting at increasing his already considerable stake in the company.
Fairfax owned 2.25 per cent of RIM at the end of September, according to Bloomberg, making it the fourth-biggest shareholder after Primecap Management and RIM co-founders Mr. Lazaridis and Jim Balsillie. Mr. Lazaridis says that he is so confident about RIM's future he intends to buy an additional $50-million of the company's shares.
“I'm excited Mike's buying more,” Mr. Watsa said. “We're shareholders, and we're going to look at doing the same”
He isn’t making this bet blindly. While many see RIM’s stock price as a falling knife, Mr. Watsa sees tremendous value. Declining U.S. sales have scared off investors and potential takeover suitors, such as Nokia and Microsoft, but RIM still dominates the business smartphone market.
The company also owns a slew of patents, some of which were acquired in Nortel’s bankruptcy auction last summer. Analysts have had trouble valuing this portfolio, with some estimating it is worth less than $5 per share and others assuming it is worth more than double that. If it ultimately came in at the high end of this range, buying the stock now could be a steal.
Mr. Watsa, 61, knows a thing or two about market confidence. Should RIM’s declining U.S. sales start to stabilize, aided by a gigantic marketing campaign, smartphone users may begin viewing the company in a much more positive light.
Tackling troubled companies is Mr. Watsa’s bread and butter. His commitment to RIM reflects his long-held strategy of buying companies on the cheap and then unlocking their true value.
It’s a strategy that has delivered results for Fairfax investors. In 1985, at the start of the Watsa era, its share price was just $5. On Friday, Fairfax traded just shy of $415 a share.
Mr. Watsa has made some superlative calls throughout his career, including selling half of Fairfax’s equity holdings leading up to the 1987 stock market crash, purchasing “put” options that insured the company against a fall in the S&P 500 just before the tech bubble burst, and most recently, calling the commodity boom in December, 2010, months before it imploded last spring.
As for management experience, RIM is getting someone who has lived through hurricanes of his own. Though Mr. Watsa always tried to avoid the media spotlight, he was forced into it by fears about Fairfax’s future early in the new millennium, and then again by a 2006 lawsuit he launched against U.S. hedge funds.
In 2001, Fairfax came under fire after it was forced to put aside extra reserves to protect against insurance liabilities that some analysts feared were unaccounted for. The speculation forced Mr. Watsa to hold his first-ever investor conference call and speak to his first reporter in 2003.
Then in 2006, Fairfax launched a lawsuit against U.S. hedge funds that included SAC Capital Management LLC and Third Point, seeking $6-billion in damages after Fairfax claimed they maliciously shorted its stock, making money off of its decline.