There a tons of rumours right now that “Canada’s Warren Buffett”, Prem Watsa, may buy BlackBerry through his Fairfax Financial, but he could just as easily walk away, says one fund manager.
John O’Connell, Chairman & CEO of Davis Rea was on BNN’s “The Street” this morning and talked about tech stocks, including the embattled BlackBerry, which recently announced it was “exploring strategic alternatives” -familiar street jargon for “we may sell ourselves to the highest bidder”.
O’Connell says many believed that Watsa’s voluntary removal from BlackBerry’s board meant that Fairfax Financial, the single largest shareholder of BlackBerry, was set to take the company private.
But the Davis Rea CEO says he thinks Watsa stepped down from the board because he doesn’t know what will happen with BlackBerry, and wants to have all his options open to him.
“He may announce, well, I tried and I wasn’t successful and so I sold my stock,” says O’Connell. “He’s now free to do whatever it is that he wants to do. A lot of people looked at the story very positively initially, and said the Warren Buffett of the north is going to take a big swing at this thing and make a bunch of money so we should pile on too. I don’t think you can draw those conclusions. This is a falling knife.”
O’Connell says it may turn out to be harder than some expect to find private investors who are interested in BlackBerry and that it may end up being a “zombie” company.
Prem Watsa’s Fairfax Financial, an insurance company with direct investments in other insurance companies and a portfolio of bonds and common stocks, has an average annual return of 17.9% over the past decade. By comparison, the S&P 500 has returned 1.4% per year over the same period. Fairfax was Canada’s most profitable corporation in 2008, and through moves that sometimes puzzled the general public, Watsa kept making money through the worst recession in a generation. Before the market collapse of 2008, Watsa used credit default swaps to bet against the US credit market. His $341 million bet returned more than $2 billion.
At last check, Watsa, between Fairfax Financial and his internal money management firm, Hamblin Watsa, owned more than 28% of the outstanding shares of BlackBerry.