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Can Prem Watsa, Canada's billionaire king of lost causes, save BlackBerry?

Can Prem Watsa, Canada's billionaire king of lost causes, save BlackBerry?


The fallen smartphone maker would be the biggest bet yet by Watsa's Fairfax Financial

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BlackBerry logo busted old bad stock (1020)
BlackBerry logo busted old bad stock (1020)

Prem Watsa, the Indian-born billionaire whose Fairfax Financial made a bid to buy BlackBerry today, has acquired a sort of legendary status. It began with the rags-to-riches tale of a young student who turned his back on chemical engineering school, eventually becoming one of Canada's wealthiest investors. It grew when in 2007, he correctly predicted that the subprime mortgage market would collapse. And it reached a peak with his bold bet on the ailing Bank of Ireland, a move that paid off handsomely.

The Warren Buffett of Canada

Wagering on what others saw as a lost cause has helped grow Fairfax into a $31 billion behemoth. The company's share price has risen an average of 21 percent annually over the last two decades. And it's earned Watsa favorable comparisons as the Warren Buffett of Canada. Like Buffett, Watsa is a student of Ben Graham's value investing strategy, which tries to buy companies whose shares seem undervalued by the market, based on analysis of the fundamentals. Like Buffett, he has built his business on a foundation of insurance, layering on top investments and acquisitions across a broad range of industries. And like Buffett, his approach has paid off. In 2008, Fairfax was Canada's most profitable corporation.

But while Watsa has a history of investing when things look bleak, he has never before done a deal of this size, nor executed a trade in which his company will likely be forced to take such a large operational role. BlackBerry lost nearly $1 billion in just the last quarter. To stem the bleeding, Watsa will have to take drastic measures, potentially selling off large parts of the company and shuttering its consumer phone business entirely.

Watsa seems like a BlackBerry believer

Complicating this difficult process will be Watsa's personal feelings for BlackBerry. He is not known as a Carl Icahn type — a vulture capitalist who likes to pick apart ailing companies. In fact, he has called BlackBerry "Canada's greatest technology company." He is currently chancellor at the University of Waterloo, BlackBerry's hometown school, and would like to see the company continue to provide jobs there. It's a position previously occupied by BlackBerry founder (and University of Waterloo graduate) Mike Lazaridis, who Watsa describes as a "good friend." Lazaridis has made substantial donations to the university.

Watsa's motivations aren't simply personal, of course. He already made a big bet on BlackBerry through Fairfax, beginning to accumulate stock back in 2010, when the company was still valued at roughly $50 a share. Since then the stock price has plummeted to around $8.30. All told, Fairfax has built up a 10 percent stake in Blackberry and has a long way to go if it hopes to recoup its initial investment.

In a letter to his shareholders last year seeking to calm fears about BlackBerry's tumble, Watsa wrote, "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, almost exclusive usage by governments in Canada, the US and the UK, a huge original patent portfolio, an outstanding new operating system developed by QNX and $2.9 billion in cash with no debt, are all formidable strengths as BlackBerry makes its comeback!"

"Trees don’t grow to the sky and markets don’t fall to the floor."

Blackberry's new operating system has since flopped and its cash hoard has dwindled — but Watsa has demonstrated that he likes a challenge. He has recently invested in newspaper companies and struggling PC makers like Dell (which, like BlackBerry, recently staged its own bid to go private). He reportedly likes to say, "Trees don’t grow to the sky and markets don’t fall to the floor." It's been a rough few years for Blackberry, but Watsa is wagering that, with his help, the company may finally have hit bottom and is poised for a rebound.