The recent misfortunes of BlackBerry Ltd. (TSX: BB, NASDAQ: BBRY) have kept investors spellbound for months, as the Waterloo, Ontario-based company has lost share of the smartphone market to rival Apple Inc. (NASDAQ: AAPL), and watched almost helplessly as its bottom line has sunk like the proverbial stone. The latest installment in this drama came late this week, as the company opted to cancel a conference call – scheduled for Friday – amid word the company was going to lose $1 billion in the latest quarter, already having announced 4,500 layoffs – gutting about 40% of its workforce.
Now, the company and those around it wonder, what’s the next step? Is it to hold an auction for a possible buyer who will take on its debts and conceivably take the company private? Is it to accept the latest offer from one of its major shareholders, in Fairfax Financial Holdings (TSX: FFH), to team up with a consortium of investors to purchase BlackBerry for $9.00 U.S. a share – or $4.7 billion U.S. (pretty sad, incidentally, for a company said to be worth over $100 billion as recently as 2007)?
And just who is this background player, Fairfax Financial? Based in Toronto and founded in 1985, the company calls itself a financial services firm "whose corporate objective is to achieve a high rate of return on invested capital and build long term shareholder value."
The company’s head honcho, Prem Watsa, has been dubbed by some as the "Warren Buffett of Canada". The Indian-born Watsa emigrated to this country 42 years ago, and sits on various boards and has served as chancellor of the University of Waterloo. He has made a name for himself mostly as an investor who identifies distressed and undervalued assets, bets on them, and reaps returns. Fairfax went on to become Canada’s most profitable company in 2008.
Last year, he was appointed to the then-Research In Motion’s board as part of a major corporate shakeup. Fairfax raised its stake in Blackberry from 2% in January 2012 (when he joined the board) to 10% by mid-2013, during a period when the company stock prices were on a decline. Last month, when Blackberry announced it was exploring options for a sale, Watsa resigned as a director on the Blackberry board, citing potential conflict of interest. This was read as a statement of intent to mount a bid for the company, a bid that was revealed this week for all the world to see.
Through all the rough times experienced by BlackBerry of late, it has always had a firm believer in Watsa, who has been quoted as saying "the brand name, a security system second to none, a distribution network across 650 telecom carriers worldwide, a 79-million-subscriber base, enterprise customers accounting for 90% of the Fortune 500....are all formidable strengths."
He has also taken aim at skeptics of his resolve, telling the Associated Press, "we thought long and hard before we offered $9 a share and we’re not in the business of offering a number and at the last minute changing the figure … Rest assured, when we do this it won’t be done to split the company."
As the Globe and Mail reported Thursday, Fairfax has until early November to scour BlackBerry’s books and firm up a bid. But questions remain about financing and other issues. The paper also says there has been no mention by Fairfax of the potential consortium members.
Either way, to paraphrase the Chinese proverb, both companies are living in interesting times, but at least Fairfax is enjoying the top end of its 52-week range for its stock price. That peak of $438.00 a share was reached in mid-May, its gulch at $335.00 plumbed last November. The stock closed Thursday at $420.58, down 29 cents from Wednesday's close.
