The "Warren Buffett of Canada" (a ridiculous nickname), Prem Watsa, is a 10% owner of beleaguered smartphone maker BlackBerry (NYSE:BB) and, at this point, the company's biggest cheerleader. Earlier this month, the value investor extraordinaire resigned from his board seat at BlackBerry, prompting the media and analysts to consider Watsa a potential bidder for the company, which has publicly disclosed its interest in going private. Together with Canadian pension funds and banks, Watsa's team effort would represent about 17% of BlackBerry's outstanding shares, and would likely be the leading contender. What does this mean for BlackBerry investors and the future of the company?
To have Prem Watsa by your side through the depths of a near-fatal company crisis is about as strong a vote of faith as one can get. By any definition of the word, Watsa is a conservative investor. Behind Fairfax Financial, an insurance-based conglomerate that looks strikingly similar to a young Berkshire Hathaway, is Watsa's ultra-conservative value investing strategy. He attracts plenty of criticism from those who demand more impressive short-term results, as Watsa has kept a large cash hedge against what he considers to be an overvalued market. During the bull market of the past couple of years, Fairfax's holdings have not kept up pace and resemble a doomsday strategy.
This is important, because when it comes to investing in BlackBerry, let alone being its 10% owner, few would consider the position conservative. Yet Watsa stands firmly behind the company and appears convinced that the company holds far greater value than the market credits it with. Previously, the investor stated that BlackBerry was a five-year turnaround play -- as a public company. It is possible that Watsa has shifted course, and believes that the best way for the company to unlock its value is to remove itself from the public markets.
So, again, what does this suggest for BlackBerry investors?
If Watsa comes out with an offer for the company, it's unlikely that it will be a large premium to the company's current price of approximately $10.30 per share. In the past year, the stock has traded as high as $18.30 per share, and as low as $6.22. As mentioned, the Canadian guru is one of the most conservative players out there, and he will not be making a gift to BlackBerry shareholders -- whatever price that comes out of this will be one that is firmly rooted in a heavily discounted thesis.
On the other hand, if Watsa does not come forward with an offer, the takeaway for investors will be that the company's value can improve and appreciate as a public entity. While it is not a guarantee that by following the moves of a famed investor, one will enjoy the same returns, Watsa's risk-averse investing prowess cannot be ignored in this situation. BlackBerry receives some of the most negative attention of any technology company out there, and it's easy to be blindsided by the sentiment. But, with a long-term attitude, BlackBerry remains an interesting investment. The company may spin off its messenger service, giving shareholders a piece of that more immediately profitable pie, and it also remains richly stocked with intangible assets that could fetch a pretty penny in a sale. The question of BlackBerry dying and the stock going to zero is an improbable event.
Don't expect the stock to rocket up any time soon without the catalyst of a premium buyout offer -- this is not a quick turnaround play. Current investors are best suited to leave the news regarding BlackBerry alone, and sit by Watsa's side as either a long-term investor, or perhaps as the recipient of a Canadian-fueled buyout.