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Prem Watsa seems to see something in BlackBerry Ltd. that no one else does. Let's hope it's not just the clouds of sentimentality.
The Canadian investor's publicly traded holding company, Fairfax Financial Holdings Ltd., is leading a group of investors that has offered $4.7-billion to acquire the once-proud and now-barely-breathing Canadian smartphone pioneer. A long-time staunch supporter of BlackBerry even as other investors turned their back on the company, he's now making a hefty bet that his faith, shared by few, isn't misplaced.
Mr. Watsa's mentor, John Templeton, preached to "buy at the point of maximum pessimism." At least in this case, no one can argue that Mr. Watsa didn't follow Mr. Templeton's advice to the letter. The deal, at $9 a share, is a slight discount to the dismal price to which the stock had sunk by Friday's close, after BlackBerry had revealed losses approaching $1-billion in its latest disastrous quarter. The deal price is also a mere 1/17th of the stock's value at its peak in 2008, and 1/8th of what it was worth as recently as 2011.
It was no big surprise that Fairfax would launch a bid for BlackBerry. It was already the company's biggest investor, with almost 10 per cent of its stock. When BlackBerry announced last month that it was putting itself on the selling block, Mr. Watsa resigned from BlackBerry's board, citing "potential conflicts that may arise during the process" – a pretty clear signal that he was considering a bid.
What's less clear is why. Though Fairfax in recent years has been diversifying its holdings, showing a growing interest in consumer products and retail, Fairfax is, at its core, a financial services company. If its intention is to turn around BlackBerry – and by all appearances, that is the plan – it has no obvious in-house expertise to pull that off.
Perhaps this is as simple as Mr. Watsa protecting his investment. In his annual letter to Fairfax shareholders last spring, Mr. Watsa disclosed that the company had paid an average of $17 a share for its BlackBerry stake – which at current prices translates into a loss of more than $400-million. With a very real risk that the company's value could head toward zero and its parts sold for scrap without an intervention, Mr. Watsa may have decided that Fairfax urgently needed to throw the company a lifeline.
What Fairfax has are the deep pockets and deep-value investing mentality that can buy BlackBerry time – a commodity that few other investors could or would offer. And Mr. Watsa is, rightly or wrongly, one of the few remaining true believers in BlackBerry. He invested in BlackBerry at the request of co-founder Mike Lazaridis, whom he has called a "genius" and "a good friend." He sees a company with no debt and $2.6-billion in cash and short-term investments, that is trading well below its book value. He also he still believes that there are elements of BlackBerry that can excel in their market, particularly the company's massive business with corporate clients.
Is Mr. Watsa just seeing what he wants to see? Perhaps even he is entertaining the possibility – which may explain the substantial wiggle room built into Monday's announcement. The proposed buyers have until early November to conduct "due diligence" on BlackBerry. If they determine that the company really isn't worth what it looks to be on paper, or if its reputation in the market slides to the point of no return over the next six weeks – or even if they just get cold feet – the buyers could just walk away.
What's certain is that the market isn't holding its breath for a better offer. After the deal was announced, the stock bounced back to $9 and basically just sat there. (It closed on the Toronto Stock Exchange at $9.08, unchanged on the day.) Mr. Watsa may not only be BlackBerry's best friend, he may be its last hope.
David Parkinson is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow him on Twitter at @parkinsonglobe .
This story has been corrected to say that BlackBerry has $2.6-billion in cash and short-term investments, not $2.8-billion, as previously stated.