1. kevinnugent's Avatar
    Fairfax at 14-Year High Shows BlackBerry Is Gravy - Bloomberg

    Fairfax at 14-Year High Shows BlackBerry Is Gravy
    By Katia Dmitrieva - Oct 28, 2013 2:00 PM GMT+1000 ..Facebook Share Tweet LinkedIn Google +1 0 Comments
    Print QUEUEQ..Stock Chart for Fairfax Financial Holdings Ltd (FFH)
    Fairfax Financial Holdings Ltd. (FFH) has climbed to the highest level since 1999 after investments in Irish banking and Canadian cattle feed surged, more than offsetting any potential loss from a $4.7 billion bid for smartphone maker BlackBerry Ltd.

    Fairfax, which has a portfolio worth $24.1 billion, has gained 31 percent this year, compared with a 7.8 percent rise in the Standard & Poors/TSX Composite Index. The investment firm has returned 13 percent annually over the past 20 years, mirroring the rise of Warren Buffetts Berkshire Hathaway Inc., according to data compiled by Bloomberg.

    Like Berkshire Hathaway, they tend to focus on the long term, Colin Stewart, Toronto-based chief executive officer of JC Clark Advisor Ltd., said in a phone interview Oct. 22. There have been some headlines recently on some of their more high-profile investments like BlackBerry. But its just one investment in a large portfolio. Its not something I worry about or focus on.

    Fairfax CEO Prem Watsa, 63, who founded the Toronto-based insurer in 1985, makes contrarian bets that often pay off, including a stake in the Bank of Ireland (BKIR) that has risen 141 percent since Fairfax invested in July 2011. The offer to buy Waterloo, Ontario-based BlackBerry, which has lost more than 90 percent of its value since 2008, is his biggest publicly disclosed deal yet.

    Fairfax, which announced Sept. 23 its offer to take BlackBerry private with a group of investors, hasnt made public its partners or financing details for the bid. BlackBerry co-founders Mike Lazaridis and Douglas Fregin said this month theyre also considering a bid. Cerberus Capital Management LP, a New York-based private equity firm, is said to be weighing an offer, a person with knowledge of the situation said earlier this month.

    Breakup Fee
    Fairfax said it wants to reach a definitive agreement on BlackBerry by Nov. 4, and one element of support for its shares may be the unusually high breakup fee it has devised.

    BlackBerry will pay Fairfax $157 million if the smartphone maker strikes a better deal with another buyer during the due diligence period. If a higher rival bid comes in after the Fairfax group has agreed to a deal, the fee rises to about $262 million. Fairfax is BlackBerrys biggest shareholder with about a 9.9 percent stake, according to data compiled by Bloomberg.

    Paul Rivett, president of Fairfax, declined to comment on Fairfaxs performance and strategy.

    Fairfax has successfully invested as part of a group before. It joined WL Ross & Co. and Fidelity Investments and two other investors to buy a combined 34.9 percent stake in Bank of Ireland, the countrys largest lender.

    Hefty Portfolio
    Watsa takes specific risk with companies trading at a significant discount and offsets that with a pretty hefty, safe and secure portfolio, Jonathan Adams, a senior analyst at Bloomberg Industries, said in an Oct. 22 phone interview from Skillman, New Jersey. What makes this company different? Part of the answer certainly lies in investment strategy.

    Watsa has said in remarks to shareholders that Buffett guides his investment strategy, leading him to choose undervalued stocks and holding them for the long term.

    Fairfaxs investment portfolio includes everything from pet insurance to cattle feed and Greek malls.

    Fairfax benefited from betting against U.S. banks and insurers during the financial crisis, then bought $100 million of convertible debt of Chicago-based USG Corp. (USG) in November 2008 and profited from the housing recovery. USG, the worlds largest gypsum product manufacturer, has risen about 300 percent since then as housing starts recovered, fueling demand for the ingredient in plaster.

    Animal Feed
    Watsa is now wagering on Greeces recovery. Fairfax allocated about 164 million euros ($226 million) to boost its holding in Athens-based Eurobank Properties Real Estate Investment Co. to about 42 percent from 19 percent. The company leases offices and malls. Fairfax raised its holdings in Mytilineos Holdings SA (MYTIL), also based in Athens, to 5.02 percent from 4.25 percent on Oct. 18. The energy and metals producer has gained 35 percent this year.

    Fairfaxs investment in Winnipeg, Manitoba-based Ridley Inc. (RCL), an animal feed manufacturer, rose about 75 percent since it acquired a C$81 million ($77.5 million) stake in 2008.

    People always saw Fairfax as an insurance company that was more dependent upon its investment returns to generate earnings, said Stewart, whose Toronto-based firm manages C$230 million in assets and has been a Fairfax investor for at least two decades. Now theres the potential for continued strong investment returns but also improving results in the insurance business, which is encouraging to see.

    Insurance Business
    Net income among U.S. private property and casualty insurers advanced 42 percent to $24.5 billion in the first half of 2013 from the same period a year earlier, with average rates of return increasing to 8.2 percent from 6.1 percent, according to an Oct. 3 report by Jersey City, New Jersey-based Insurance Services Office Inc.

    Premiums, or the prices paid by clients for coverage, rose over last year but are still below normal due to higher taxes on their products, the report said.

    Insurers now need much better underwriting results just to be as profitable as they were in the past, said Michael Murray, ISOs assistant vice president of financial analysis.

    Fairfax posted a loss of $157.8 million in the second quarter compared with a profit of $93.7 million in the year-ago period as its bond portfolio slipped on higher interest rates. The Toronto-based company reports third-quarter results on Oct. 31. Fairfax climbed 2.9 percent on Oct. 25 to C$468.11 in Toronto, raising its market value to C$10 billion.

    Undue Attention
    Not all the insurers picks have paid off. Fairfax invested $17.6 million in Zoomermedia Ltd., a lifestyle publisher. The stock has declined about 48 percent since the deal was finalized on June 15, 2009. In 2009 Watsa wrote down losses of $65 million in Dell Inc. and his C$64 million bet on childrens toy-maker MEGA Brands Inc. soured as its shares fell 70 percent in the last five years.

    Watsas investment in BlackBerry has not worked out so far. Fairfax more than doubled its stake in BlackBerry in January last year to 26.9 million shares. The device-makers stock has fallen 49 percent since then as the company lost market share for its products to Apple Inc. and Google Inc. Fairfax currently holds 51.9 million shares of BlackBerry, according to Bloomberg data.

    The BlackBerry deal has got an undue amount of attention considering the magnitude and the size of Fairfaxs investment portfolio, Stewart said. Their long-term results have been excellent and we dont have reason to believe that will change.

    To contact the reporter on this story: Katia Dmitrieva in Toronto at edmitrieva1@bloomberg.net

    To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net
    10-28-13 01:27 AM
  2. zocster's Avatar
    Nice, I always wanted Prem to own BBRY. Just hope he sticks to his promise not to break it up.
    10-28-13 02:03 AM
  3. JeepBB's Avatar
    Guess we'll see in a few days if PW is really doing this.
    Not sure he ever promised not to break it up tho... Spoke of focus on enterprise... Which implies to me letting other things go


    JBB
    Etios and kevinnugent like this.
    10-28-13 03:40 AM
  4. BBPandy's Avatar
    Guess we'll see in a few days if PW is really doing this.
    Not sure he ever promised not to break it up tho... Spoke of focus on enterprise... Which implies to me letting other things go


    JBB
    He didn't "promise" not to break it up, but he did say that he saw great potential in BlackBerry & did not plan on breaking it up.
    ColdStoneGuards likes this.
    10-28-13 07:58 AM
  5. oilgeo10's Avatar
    Is the Bank of Ireland still a penny stock?! The Watsa final offer will be <$9 if no one else steps in. Nov 4 is next Monday, set up so Fairfax can go lower over the weekend if BB stays down. That's if Fairfax has cobbled together the funds from the multiple small operators it usually taps, and also maybe a couple of bigger cap firms.

    Posted via CB10
    10-28-13 08:56 AM
  6. kfh227's Avatar
    Is the Bank of Ireland still a penny stock?! The Watsa final offer will be <$9 if no one else steps in. Nov 4 is next Monday, set up so Fairfax can go lower over the weekend if BB stays down. That's if Fairfax has cobbled together the funds from the multiple small operators it usually taps, and also maybe a couple of bigger cap firms.

    Posted via CB10
    No!

    This is not how Fairfax operates. They make take it or leave it offers. This is also exactly what Buffett does.

    The offer is $9. It will not be changed and if a higher offer comes in, they will walk away.

    Posted via CB10
    fedakd and Superfly_FR like this.
    10-28-13 09:12 AM
  7. russmov's Avatar
    I hope that they can find a way to keep BlackBerry together and not break it up just to make a quick buck.
    10-28-13 09:33 AM
  8. JuiciPatties's Avatar
    Seems like a lot of people want Fairfax to purchase Blackberry in order to keep it Canadian. With that in mind, what would probably also be good to those loyal blackberry shareholders is if Fairfax purchased the outstanding shares of Blackberry with either equity in Fairfax or perhaps issue each existing shareholder a call option to purchase back all of their existing shares of Blackberry "when" they take the company public once again, at a strike price equal to what they purchase it at.

    I have no idea if this is feasible. Probably not, but just wanted to throw that out there. It seems shareholders are concerned that they will not realize any growth in the company for which they have faith in. If they get equity in Fairfax, they can partially share in the growth of a private blackberry. If they get a call option to purchase back their shares at the same price, then they can maybe realize some of the potential if blackberry ever goes public again.

    Anyway, I know this isn't likely. Just throwing out random thoughts.
    10-28-13 09:47 AM
  9. heymaggie's Avatar
    The great thing about cash is that you can use it to buy anything including shares of Fairfax at the market price. I'm not sure why Fairfax would care about those "loyal Blackberry shareholders" at all since, presumably, I would get the same benefit even though I've only own my BBRY shares for less than a month.
    10-28-13 09:52 AM
  10. app_Developer's Avatar
    With that in mind, what would probably also be good to those loyal blackberry shareholders is if Fairfax purchased the outstanding shares of Blackberry with either equity in Fairfax
    They get something better: cash. They can choose to buy Fairfax equity with that cash or not.

    or perhaps issue each existing shareholder a call option to purchase back all of their existing shares of Blackberry "when" they take the company public once again, at a strike price equal to what they purchase it at.
    Fairfax can't write free calls at $9. They aren't a charity. You're asking Fairfax shareholders to assume all of the risk and then turn around and return a substantial part of the gains to people who will be sitting on the sidelines.
    sexybabe88 likes this.
    10-28-13 10:05 AM
  11. EchoTango's Avatar
    I think a lot of non-shareholders want the Fairfax deal to go through just to remove the uncertaincy. As a shareholder I can tell you this deal is a corporate mugging on a major scale. Watsa is probably holding his own position over the company's head by threatening to dump his position in one day or some other coporate suicide attack if he's prevented from moving forward with this "deal".

    Remember...it's not $9 per share, it's only $4.70 once you remove the cash on hand. This is the bargain of the century !
    10-28-13 10:13 AM
  12. JuiciPatties's Avatar
    haha ... hmm ... so yeah ... what would be even better is for them to give the shareholders call options for the same amount of shares and at a strike price equal to each shareholder's existing average cost!!
    10-28-13 10:17 AM
  13. trwrt's Avatar
    Fairfax benefited from betting against U.S. banks and insurers during the financial crisis
    Oh my gosh, does this mean they are SHORT SELLERS?! I'm going to faint!
    10-28-13 01:55 PM
  14. anon1727506's Avatar
    I think a lot of non-shareholders want the Fairfax deal to go through just to remove the uncertaincy. As a shareholder I can tell you this deal is a corporate mugging on a major scale. Watsa is probably holding his own position over the company's head by threatening to dump his position in one day or some other coporate suicide attack if he's prevented from moving forward with this "deal".

    Remember...it's not $9 per share, it's only $4.70 once you remove the cash on hand. This is the bargain of the century !
    So as a shareholder... what do you want? Other than someone else to make a better offer.

    Do you want BlackBerry to just keep going and see if there really is a "prosumer" market that they can corner and that it will support them... all the while burning through what cash they have until their only option is Bankruptcy. (no one is going to loan them operating capital)

    Or maybe you believe it would be best if all the parts are worth more than the whole, that BlackBerry sells their pieces themselves, until they are no more... and then splits all the proceeds with their faithful shareholders. Has that ever really happened?


    IF Fairfax were "stealing" BlackBerry.... they have not been very quite about it. Plenty of other "theives" out there have given BlackBerry a once over and don't seem to be too interested.
    milo53 and richardat like this.
    10-28-13 02:21 PM
  15. milo53's Avatar
    Wonder why, in the middle of the devastating Q2, would this BOD, led by PW, authorize Thor's bonus increase from 15million to 55million? Why then? Why that amount? Was there a real fear that Thor was gonna bolt? why, why, why? Ohhh, the ships going down, we gotta FIRE 4500 people, wait, I have an idea, let's buy a Jet and up Thor's Bonus 40million! Really?

    I'm stuck with a dead Tablet with ****ty farting applications. I hope you THEIVES are enjoying my $$.

    In the big picture maybe it's no big deal, but it bugs me and it should be a concern of all. me, I'm still really pissed-off.
    10-28-13 03:46 PM
  16. Gunner24's Avatar
    Well that bonus is only if he is removed as a result of a takeover, so it could have been a poison pill to deter a hostile takeover, or an incentive for Thor to get the company in good shape before selling it. Take your pick.

    Posted from my Q10 on the West Coast
    milo53 likes this.
    10-28-13 03:53 PM
  17. rim4ever's Avatar
    FF can stick to its $9 offer or choose to lower its bid if nobody else comes in. However it doesn't mean it'll be accepted by majority of shareholders. IMHO it'll most likely be voted down because the pieces are worth much more than $9 a share. Let's face it. While PW/FF can be smart, the other 90% is not stupid.
    fedakd likes this.
    10-28-13 05:53 PM
  18. donmateo's Avatar
    For everyone scoffing the FFH deal, you could always take $0/share. They don't have to offer anything, you assumed the risk of losing every cent you invested as soon as you bought the stock. If you don't agree with that, you have no business investing. $9 > $0
    SK122387, mujahid 10 and milo53 like this.
    10-28-13 06:46 PM
  19. SK122387's Avatar
    For everyone scoffing the FFH deal, you could always take $0/share. They don't have to offer anything, you assumed the risk of losing every cent you invested as soon as you bought the stock. If you don't agree with that, you have no business investing. $9 > $0
    THANK YOU.

    I don't know why more people don't realize this. It's actually scary to think that people who so grossly misunderstand the consequences of investing are taking that risk with their money.
    10-28-13 09:11 PM
  20. kevinnugent's Avatar
    Wonder why, in the middle of the devastating Q2, would this BOD, led by PW, authorize Thor's bonus increase from 15million to 55million? Why then? Why that amount? Was there a real fear that Thor was gonna bolt? why, why, why? Ohhh, the ships going down, we gotta FIRE 4500 people, wait, I have an idea, let's buy a Jet and up Thor's Bonus 40million! Really?

    I'm stuck with a dead Tablet with ****ty farting applications. I hope you THEIVES are enjoying my $$.

    In the big picture maybe it's no big deal, but it bugs me and it should be a concern of all. me, I'm still really pissed-off.
    They also increased his salary and earnings capability from 3m to 10m a year. Nice little earner, huh? Just a few months ago.
    richardat likes this.
    10-29-13 03:55 AM
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