In troubled Blackberry, Watsa sees a chance for a turnaround

The ‘Warren Buffett of Canada’ is a shrewd investor.

By Deepak Chitnis

WASHINGTON, DC: Blackberry Ltd., the company behind the once-rabidly popular Blackberry smartphone device, signed a letter of intent yesterday to be bought by Fairfax Financial Holdings (FFH) for roughly $4.7 billion, which equates to about $9 per share.

FFH is owned and operated by Prem Watsa, the company’s founder, chairman, and CEO. Watsa took control of Market Financial Holdings, Ltd. in 1985, re-organizing it and then re-naming it Fairfax Financial Holdings. He has built FFH into a powerhouse, with more than 8,000 employees around the world and total assets worth nearly $32 billion, as well as revenue of more than $6 billion (according to the numbers in the company’s 2010 annual report).

“[Watsa’s] performance is spectacular and he ranks among the best investors in Canada and in the world,” says Jacob Wolinsky, in an interview with Global India Newswire (GIN) in 2011. Wolinsky the vice-president of business development for SumZero LLC, a professional investors website whose co-CEO is Indian-American Divya Narendra, perhaps best known for his role in the Facebook scandal that was dramatized in the film The Social Network. “For the past 25 years, the book value of [FFH] has compounded a cumulative 24,424%, versus 979.7% for the S&P 500.”

Watsa is renowned for his ability to look at an investment and assess how risky it could be; if something smells, he turns it away immediately. His unofficial mantra – invest money into a troubled asset which has the potential to become a very successful long-term value – has become the common practice of FFH. When Bank of Ireland faced an imminent nationalization in 2011, a group of investors led by FFH invested $1.6 billion to keep the 230 year-old bank out of the hands of the Irish government; in return, they received up to a 35% stake in the Bank of Ireland.

Sometimes called the “Warren Buffett of Canada,” Watsa is also known for his ability to grasp the big picture, allowing him to see investment pitfalls and financial crises way before others can. Watsa was one of the first to predict the “Black Monday” stock market crash of 1987, the Japanese asset price bubble bursting of 1990, and the US sub-prime mortgage crisis in 2008.

“For the long-term investors [with FFH], the returns have been off-the-charts,” said Mohnish Pabrai of Pabrai Investment Fund and an investor in FFH, to GIN in 2011. “If you had joined [FFH] 25 years or so ago, when they started, the stocks [would] have gone from single digits — $6, $7, or $8 a share — to nearly $400 today. They did really well over that period.”

Now, Watsa and FFH find themselves looking to buy Blackberry. At one point the world’s leading smartphone, it has been losing market share rapidly to Apple’s popular iPhone. Google’s Android phones have also taken a large chunk of the pie away from Blackberry, forcing them into their current situation. Clearly, Watsa sees potential in Blackberry; with some capital and some luck, Watsa will likely attempt to do what he’s done before and turn the company around, making a nice profit for himself while he’s at it.

Although currently based in Toronto, Canada, he is originally from Hyderabad, India. Born in 1950, he went to the Indian Institute of Technology (IIT) Madras, where he earned his bachelor’s degree in chemical engineering in 1971. After that, he switched gears, and followed his brother to London, Ontario. He enrolled at the University of Western Ontario’s Richard Ivey School of Business and earned his MBA there.

To contact the author, email to deepakchitnis@americanbazaaronline.com

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