Tuesday, September 24, 2013

BlackBerry's Takeover by Fairfax (Prem's Parts Value Play)

Prem Watsa, CEO of Fairfax Financial is not dumb money. Billionaires rarely are when they are self made. What then really is the motivation for the takeover of BlackBerry and why now? Prem has been a shareholder for some time and already owns almost 10% of the firm. Why is the consortium wanting to take it over non-exclusive at this point? Fairfax Financial Holdings (FFH) has a current market cap of US$9BN today and is up 1% after the deal was announced. The acquisition target BlackBerry is also up 1%, that does not often happen in the market. Is this another confirmation case of the wisdom of crowds at play? 

Who is Prem Watsa anyway and is he a flash in the pan? No would be a clear answer. Born in India in1950, he joined his brother in Toronto, Canada in 1972, and has not looked back. Like Warren Buffet, he is a disciple of the classic investor Benjamin Graham, who wrote "the Intelligent Investor".  He started his career in 1974, with many of the people that he still works with today. Warren Buffet has worked with Charlie Munger, for a very long time. Long term executives know each other, respect each other and find the long-term professional career balance as a team are rare. Not loosing key executives and not having to change the executive team at Fairfax or it predecessor is a solid management strength. That kind of HR proof pays dividends too, and does so long term.

As explained, it could be the break up value of the various parts. Patents are now at a premium so if they could be sold separately, what would they sell for? Once private, the rest of the BlackBerry brand may be much cheaper.  It may also be worthwhile for a smaller player wanting to get into the space like Bloomberg terminal systems itself. Perhaps the financial information service is waiting for the patents to be sold before making a bid for the handset business on its own. During the recent Apple iPhone for the 5C/5S press conference recently, fingerprint reading on a mobile device received attention. This is already a technology in use by Bloomberg terminal users, so it may be a logical next step. For the right price, post any patent sale, it could indeed make the final price very attractive. Security is of vital importance to many financial users and if the device is good enough for the President of the USA, it may be safe enough with a fingerprint security system for less powerful executives in the financial world. 

For more Buy-Side and Sell-Side roles in Asia-Pacific, contact our TMJ Partners Japan & Asia Finance team.

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