1. OMGitworks's Avatar
    Pretty interesting and I's say balanced view of it all.

    BlackBerrys Woes Draw Canadas Contrarian Mogul Into Spotlight

    By DAVID GELLES and IAN AUSTEN

    V. Prem Watsa, head of Fairfax Financial Holdings, is far from a public figure in Canada and gives interviews only sporadically.Aaron Harris/Reuters V. Prem Watsa, head of Fairfax Financial Holdings, is far from a public figure in Canada and gives interviews only sporadically.

    Throughout the first weekend of November, V. Prem Watsa, the Canadian immigrant success story and chairman of Fairfax Financial Holdings, was huddled in the offices of his Toronto law firm, Torys, trying to salvage the biggest bet of his career.

    In late September, Fairfax had made a highly conditional offer to buy BlackBerry, the struggling smartphone maker based in nearby Waterloo, Ontario. Few on Wall Street took the offer seriously, instead viewing it as a way for Fairfax, BlackBerrys largest shareholder, to bring other buyers into the picture.

    But as Fairfaxs takeover deadline loomed, no other buyers had surfaced and Fairfax had failed to find co-investors for its bid. Mr. Watsa and his team needed an alternative.

    Finally, a solution of sorts emerged last Monday from the exhausted team backed by Mr. Watsa. Rather than buying out BlackBerrys shareholders at $9 a share, Fairfax and BlackBerry announced a new deal that would raise $1 billion in cash through convertible debt sold to a combination of Canadian, American and Qatari investors. Thorsten Heins, BlackBerrys short-lived chief executive, was succeeded by a new executive chairman and interim chief: John S. Chen, another successful immigrant to North America who had turned around Sybase years earlier through a prescient move into mobile computing.

    Many viewed it as just another stalling tactic in a situation where few good outcomes are likely. BlackBerrys battered shares dropped even lower. Yet Mr. Watsas determination to be personally involved in a messy corporate implosion speaks to his own pride, his affection for Canada and his reluctance to walk away from what could be one of the worst moves he ever made.

    Arguably Canadas leading contrarian investor, Mr. Watsa enjoys a disproportionately large reputation as a canny player within the countrys relatively small financial community. But unlike, say, Conrad M. Black, he is far from a public figure. Both Mr. Watsa and his executives gave no interviews to media outlets for years and now do so only sporadically. And Fairfax, which was founded in its current form in 1985, only began quarterly conference calls with analysts in 2003. No one from the company would be interviewed for this story.

    Even in a country with a large population of immigrants from South Asia, many of whom went on to great success, Mr. Watsa, 63, stands out. He was born near Hyderabad, India, and studied chemical engineering at the Indian Institute of Technology before joining his brother in London, Ontario, after his graduation in 1971. He sold air conditioners and furnaces door to door to pay for M.B.A. studies there at the University of Western Ontario.

    In Mr. Watsas legend, a key moment is when one of his managers at Confederation Life, a now defunct insurer, gave him a copy of The Intelligent Investor by Benjamin Graham. The books advocacy of value investing resonated with Mr. Watsa, who also came to admire Warren E. Buffett, chairman of Berkshire Hathaway, for similar reasons.

    Fairfax owns a variety of insurance companies whose premiums provide it with a steady stream of capital for investment in a structure similar to Berkshires. Like Mr. Buffett, Mr. Watsa appears to take pride in his annual letter to shareholders, although his writing style leans toward the liberal use of exclamation points.

    Some argue that the comparisons end there.

    Psychologically speaking, he thinks hes the Warren Buffett of the North, said one person who has followed his business closely over the years. But that person, who spoke on the condition of anonymity because he still occasionally does business with Mr. Watsa and did not want to offend him, noted that Mr. Watsa favored investing in distressed firms with comparatively few shareholders, with BlackBerry being a notable exception.

    Typically, he does these things in not such public high-profile companies. The rules of the game that he applied over his career dont work in a liquid stock like this, the critic said.

    A person who worked with Mr. Watsa in the past said, however, that BlackBerry is precisely the sort of challenge Mr. Watsa seeks and relishes.

    When its down and you cant find a single person to help it, thats where he wants to be, said this person, who spoke on the condition of anonymity because he did not want to complicate relations with Mr. Watsa, whom he still knows socially.

    But he acknowledged that Fairfax was blindsided by the amount of publicity generated by the failed buyout offer.

    A decision in 2002 to add a listing on the New York Stock Exchange as well as Toronto forced Fairfax and Mr. Watsa out of their shells. It came in the middle of a seven-year period when problems with some insurance acquisitions in the United States hampered Fairfaxs financial performance.

    Hedge funds in the United States shorted Fairfaxs stock, driving its share price down while attacking the strategies and methods of Mr. Watsa and his company.

    In 2006, Fairfax sued a group of hedge funds including SAC Capital Advisors and Third Point, contending that they had tried for years to destroy the reputation of Mr. Watsa and Fairfax, and then profit by betting that Fairfaxs stock would fall.

    Though many of the funds were dismissed from the case, Mr. Watsa continued to pursue them for years, spending tens of millions of dollars on legal fees.

    We didnt really understand the extent to which the short side of the equation would dominate the story, the person who once worked with Mr. Watsa said. The funds, he said, just about destroyed the company.

    People close to the hedge funds said they had legitimate reason to believe that Fairfax had in fact incurred huge losses, but was masking them. Whether or not that was the case, Mr. Watsa then made back those losses and brought Fairfax to new heights by successfully betting against the American housing market well before the financial crisis. Fairfax voluntarily delisted from the New York exchange in 2009.

    Mr. Watsa again uncomfortably finds himself under the microscope as he grapples with perhaps his greatest challenge ever in BlackBerry. In 2009, Mr. Watsa was recruited as the chancellor of the University of Waterloo by BlackBerrys co-founder and former co-chairman Mike Lazaridis, and the two became friends. When BlackBerrys plummeting market share and stock price led Mr. Lazaridis to step down as co-chief in January 2012, Mr. Watsa revealed that he owned 5.1 percent of the company and joined its board. He soon doubled that holding and became a public champion of the company.

    In his last shareholders letter, Mr. Watsa said that Fairfax, which owns about 10 percent of the company, had paid an average price of $17 a share. On Friday, the stock closed at $6.56 share on Nasdaq. It is down nearly 45 percent this year.

    The person who once worked with Mr. Watsa said he most likely miscalculated how public scrutiny would impair his turnaround efforts with BlackBerry, a company that has been a symbol of national pride in Canada. He didnt understand the extent the brand recognition mattered here, this person said.

    Fairfax consulted former mobile executives from Motorola and Ericsson about a successor for Mr. Heins. Mr. Chen, who was born in Hong Kong, was among the top three names on their list. Mr. Chen will commute from California to Canada, and will not be the permanent chief executive. Fairfax nonetheless is apparently counting heavily on him to find a way out for BlackBerry.

    Mr. Chen is somewhat similar to Mr. Watsa, his former associate said. He came across instantly as a guy who was up for the challenge, the person said. Hes a guy who wants to be there for a long time. He didnt flip Sybase.

    Aside from the lack of an obvious strategy for BlackBerry, turning the company around while it remains publicly traded will be an enormous challenge, said Douglas Cumming, a professor of finance at York University in Toronto.

    If they think they can get this all sorted out in the public eye, thats going to be a pretty rare event, Professor Cumming said, adding that the glare on BlackBerrys problems will further erode confidence in the brand.

    A person who has squabbled with Mr. Watsa over the years is skeptical that Fairfax will be able to save BlackBerry.

    There have been a lot of smarter people looking at this, and they cant seem to make it work, he said. Warren Buffett isnt buying broken-down tech companies.

    http://dealbook.nytimes.com/2013/11/...echnology&_r=0
    11-12-13 11:43 AM
  2. howarmat's Avatar
    good read. Its kinda hard to believe Prem didnt factor in the "perception" factor though
    11-12-13 12:48 PM
  3. OMGitworks's Avatar
    good read. Its kinda hard to believe Prem didnt factor in the "perception" factor though
    No kidding.........
    11-12-13 01:11 PM
  4. EchoTango's Avatar
    The eventual outcome of the "strategic alternatives" exercise was probably the best result for the average investor. We now have a chance to recover our positions as opposed to receiving $9, locking in I’m sure huge losses and told to go away.

    I think many of the large shareholders, like the pension plans and the Federal Government, signaled that the $9 deal would not have wide shareholder support and it was this reality that was the deciding factor for the final decision. Unfortunately, the markets have viewed this direction as a Plan B, due to the lack of external interest from other buyers. I suspect many of the logical buyers were concerned with the Canadian Government review of any foreign purchase, not to mention the NSA's concern for the ownership ECC technology should the company go to a non-North American company.

    We now have a situation where Fairfax’s success will be shared with all shareholder’s. I have no doubt that PM is now the de-facto Chairman of the Board and will be watching the company’s moves very closely. Isn’t this the kind of situation we’re all been hoping for when the company was lurching from situation to situation without apparent direction or strategy ?

    Prem Watsa has the opportunity to be a real Canadian hero, if he can pull this off and return Blackberry to the Canadian Technoloy Icon it once was .
    454vette likes this.
    11-13-13 01:24 PM
  5. danprown's Avatar
    I have little doubt the deal would have gone through.

    The fact is the CDN national review question killed any interest from real players.

    It killed the only credible deal -- the Lenovo deal. There is no telling how high the price would have gone if Lenovo, Samsung, or Chinese, Russian or Middle East concerns could bid on the company.

    PW could not find the money in Canada. And he did not beleive in the company enough to put more FF money in it. Simple as that.

    All the other jokers and tire kickers like the Apple ex-CEO or Mike L turned out to be was just that: jokers and tire kickers.

    The eventual outcome of the "strategic alternatives" exercise was probably the best result for the average investor. We now have a chance to recover our positions as opposed to receiving $9, locking in I’m sure huge losses and told to go away.

    I think many of the large shareholders, like the pension plans and the Federal Government, signaled that the $9 deal would not have wide shareholder support and it was this reality that was the deciding factor for the final decision. Unfortunately, the markets have viewed this direction as a Plan B, due to the lack of external interest from other buyers. I suspect many of the logical buyers were concerned with the Canadian Government review of any foreign purchase, not to mention the NSA's concern for the ownership ECC technology should the company go to a non-North American company.

    We now have a situation where Fairfax’s success will be shared with all shareholder’s. I have no doubt that PM is now the de-facto Chairman of the Board and will be watching the company’s moves very closely. Isn’t this the kind of situation we’re all been hoping for when the company was lurching from situation to situation without apparent direction or strategy ?

    Prem Watsa has the opportunity to be a real Canadian hero, if he can pull this off and return Blackberry to the Canadian Technoloy Icon it once was .
    OMGitworks likes this.
    11-13-13 01:40 PM
  6. kevinnugent's Avatar
    I'd like to think he's made the right bet, but can't help but wonder if he's regretting his pride.
    11-13-13 02:01 PM
  7. OMGitworks's Avatar
    $9+ a share may well look like a great deal a few months from now. It sure looks good at 6 under 7....
    11-13-13 02:24 PM
  8. gubbalarajesh's Avatar
    Add me to the group Pin:2AE39619 This Is Rajesh Gubbala from India
    02-10-14 12:41 AM

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