Blackberry Fidelity

Fairfax Financial Holdings Ltd. continues to be a faithful and active BlackBerry Ltd. investor despite worries from the rest of the market

Market analysis reprinted with permission from SNL Financial

by Raisa Luis & Terry Leone

Fairfax reported holding $411.1 million in BlackBerry in its 13F filing as of Sept. 30. Although Fairfax did not buy or sell Blackberry stock in the third quarter, it recently participated in a financing transaction that could result in a substantial increase to its stake in the mobile phone-maker.

Fairfax in mid-November bought $250 million of BlackBerry’s 6% unsecured subordinated convertible debentures, representing 25% of a $1 billion private placement. It was also given the option to buy $250 million more within 30 days of the first transaction. Assuming that it does so and that only the debentures it acquires are converted into common stock, Fairfax would beneficially own just over 100 million shares, or about 17.6% of BlackBerry’s common shares outstanding as of Oct. 24. The stake as of Sept. 30 was 9.9% of total Blackberry shares outstanding.

Analyst Jeff Fenwick of Cormark Securities in a Nov. 4 report said that while the debt deal is “highly material” for BlackBerry, its impact for Fairfax is “more muted” given that the company’s aggregate debt and equity investments in Blackberry comprise less than 3% of its investment portfolio. “We believe that the additional capital provided to BBRY is fairly low-risk with potentially significant upside,” Fenwick stated.

The chart below shows Fairfax’s largest stakes in corporate common stocks by market value as of Sept. 30. BlackBerry sits atop the chart despite the low stock price at the time. The $411.1 million BlackBerry holding on Sept. 30 represents 9.52% of Fairfax’s total common stock holdings of $4.32 billion and 1.15% of its total assets as of that date, based on figures reported in its most recent earnings release.

SNL Image

Fairfax is a long-time supporter, investor and partner to BlackBerry and, with this investment, reinforces its deep commitment to the future success of this company

Fairfax has been patient with BlackBerry for a few years, making a handful of major purchases of the stock starting in the third quarter of 2010 when it first reported holding in excess of 100,000 shares of BlackBerry’s predecessor, Research in Motion. Since then, Fairfax has been riding out the general downward trend the stock has experienced. While Fairfax has held BlackBerry stock, the price per share has fallen from above $50 to below $7, where it is today. The stock briefly bounced back in early 2013, passing $17 per share, but then fizzled in the second half of the year. Fairfax’s biggest purchase came in the third quarter of 2012 when the stock dropped under $10 per share.

The average actual cost Fairfax paid on all its current holdings is listed at $17 per share in its March 2013 annual shareholders letter.

Fairfax Chairman and CEO V. Prem Watsa recently affirmed Fairfax’s support of BlackBerry. “Fairfax is a long-time supporter, investor and partner to BlackBerry and, with this investment, reinforces its deep commitment to the future success of this company,” he said Nov. 4 in connection with the announcement of the debentures agreement.

BlackBerry announced in August that it was exploring strategic alternatives to obtain additional capital to accelerate deployment of a new phone and improve its financial position. Watsa at the same time announced that he would step down from BlackBerry’s board to avoid potential conflicts of interest. It seemed possible that Fairfax could be involved in a buyout. On Sept. 23, it appeared that had come to fruition with the announcement that Fairfax would lead a consortium offering to buy BlackBerry. However, that deal was scrapped, and Watsa’s group found a lower-risk alternative with the convertible debentures arrangement. The announcement of the debt deal included news of the resignation of BlackBerry CEO Thorsten Heins.