Fairfax Financial
Chairman and CEO Prem Watsa speaks at the
company's annual general meeting in Toronto.
Watsa on Wednesday, Sept. 25, 2013 said he has
every intention of completing the acquisition of
BlackBerry, despite doubts that the $4.7 billion
deal for the troubled smartphone maker will go
through. (AP Photo/The Canadian Press, Frank
Gunn)
The head of Fairfax Financial Holdings Ltd. said
Wednesday he has every intention of completing
the acquisition of BlackBerry, despite doubts that
the $4.7 billion deal for the troubled smartphone
maker will go through.
BlackBerry announced earlier this week that
Fairfax signed a letter of intent that
"contemplates" buying BlackBerry for $9 a share.
Fairfax, BlackBerry's largest shareholder , is
trying to attract other investors.
BlackBerry shares on Wednesday lost 6 percent,
closing a dollar below Fairfax's bid on fears the
deal won't happen.
There is no breakup fee should Fairfax walk
away, but Fairfax Chief Executive Prem Watsa
told The Associated Press his firm is not in the
business of making an offer and then walking
away or redoing the deal.
"We've got a track record of 28 years of
completing what we've done. We've never re-
negotiated," Watsa said. "We thought long and
hard before we offered $9 dollars a share and
we're not in the business of offering a number
and at the last minute changing the figure. Over
28 years our reputation is stellar on that front.
We just don't do that."
Watsa noted the deal is subject to six weeks of
due diligence but stressed Fairfax won't abandon
it.
Watsa stepped down as a board member last
month because of potential conflicts when
BlackBerry announced it was considering a sale.
If the proposed deal goes through, BlackBerry
would go private and no longer be traded
publicly.
Watsa said Fairfax won't be contributing more
to the bid than the 10 percent it already owns.
"The 10 percent is like $500 million. It's a
significant amount of money," he said. "We're
going to bring equity partners and we think the
company will be very well capitalized."
He declined to name the other investors he is
trying to bring in.
Bernstein analyst Pierre Ferragu said the lack of
details make the chances of the deal going
through appear grim. Ferragu noted that Fairfax
is not committing any more equity and said
other investors are unlikely to join a bid "that
sounds like a last chance rescue attempt for
Fairfax's stake."
Fairfax's average cost per share in acquiring
BlackBerry shares is $17. The Canadian
insurance and investment firm has lost hundreds
of millions on BlackBerry.
Analysts say that although BlackBerry's
hardware business is not worth anything, the
company still owns valuable patents. BlackBerry
is also strong in having total cash and
investments of about $2.6 billion, with no debt,
though it's burning through that stockpile. In
just the past few months, it's spent about half a
billion dollars.
Watsa said Fairfax is not buying BlackBerry to
break it apart.
"Rest assured when we do this it won't be done
to split the company," Watsa said. "I mean one
of the reasons I went on the board, and I said it
publicly, was to keep the company in Canada
and to make sure it survives and exists in
Canada. It is one of Canada's most successful
companies. Companies do fall on hard times and
they come back again and we expect this
company to do the same."
Watsa said BlackBerry needs to get out of the
media glare that comes with being public and
work on a long term turnaround in private.
The billionaire founder of Toronto-based Fairfax
Financial Holdings Ltd. is one of Canada's best-
known value investors and has taken over
troubled companies before. He compared his
BlackBerry interest to his stake in the troubled
Bank of Ireland. Watsa said his Bank of Ireland
stake is now worth double what he paid for it a
few years ago at the height of the European
crisis.
The tentative BlackBerry deal comes just days
after the Canadian company announced plans to
lay off 40 percent of its global workforce.
The BlackBerry, pioneered in 1999, was once the
dominant smartphone for on-the-go business
people and other consumers. But then came a
new generation of competing smartphones,
starting with Apple's iPhone in 2007. The
BlackBerry suddenly looked ancient. Although
BlackBerry was once Canada's most valuable
company with a market value of $83 billion in
June 2008, the stock has plummeted to $8 from
over $140 a share, giving it a market value of
$4.2 billion, short of Fairfax's offer.
"This is a company that's had a tremendous
amount of success. It's got a brand name,
BlackBerry, that's recognized all over the world,"
Watsa said. "It's got subscriber base in the 60
or 70 million area, it's got very smart people. In
the enterprise market it's got a very significant
market advantage so we think that by focusing it
on the enterprise market, it's not going to be as
big as it used to be, but it will be profitable
again."
Watsa said Blackberry can focus on business
users and its smartphone service business where
it manages the security of BlackBerry and
competing smartphones on its network. He said
all possibilities are open including getting out of
the hardware business and changing the CEO. He
said he's a fan of CEO Thorsten Heins and
thinks he's done a very good job, but said he
was handed a tough job when he took over in
early 2012. "We have to in this due diligence look
at all of these things," Watsa said.
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