BlackBerry Ltd’s Largest Shareholder Prem Watsa Bullish On Company

BlackBerry Ltd’s Largest Shareholder Prem Watsa Bullish On Company
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The largest shareholder of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) scuttled the potential for a leveraged buyout and says that the social media frenzy is the “sort of speculation will end just like the previous tech boom in 1999 – 2000 – very badly!”

In a letter to investors V. Prem Watsa, chairman and chief executive officer of Fairfax Financial, an investment holding company with over $30 billion in assets under management, detailed the story behind the story.

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Offer to take Blackberry private turns into debt deal after all-star due diligence

On September 23, 2013, Fairfax made an offer to take BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) private at $9 per share, subject to a six-week due diligence period. Watsa noted that during this due diligence process, he resigned from Blackberry’s board so Fairfax could evaluate options as well.

Watsa pulled together an all-star team to conduct due diligence.  The team was led by Sanjay Jha, former chairman and chief executive officer of Motorola Mobility and former chief operating officer of Qualcomm, inc. (NASDAQ:QCOM).  Then he brought in Sandeep Chennakeshu, who was President of Ericsson Mobile Platforms, and John Bucher, who was Chief Strategy Officer at Motorola Mobility.

This group drew three primary conclusions: 1) the company had excellent assets, 2) the management teams had made many mistakes along the way, and 3) the company could not afford high cost LBO debt.

“For the first time in our history, our due diligence resulted in our not being able to complete an announced deal”

“For the first time in our history, our due diligence resulted in our not being able to complete an announced deal,” Watsa wrote. “After discussions with the Special Committee, led by its Chair Tim Dattels, instead of continuing with a go-private transaction, we proposed to raise $1.25 billion for BlackBerry in the form of 6% seven-year convertible debentures (convertible at $10 per share into BlackBerry stock) and proposed that John Chen be concurrently appointed as Executive Chairman of BlackBerry.”

ValueWalk reported on the convertible debt on January 9, but the details of Watsa’s deliberations have yet to be public.  At the time the report noted the Prem Watsa-led company has 14% equity stake in BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), which was debt free before the financing deal. Fairfax Financial Holdings Ltd (TSE:FFH) (OTCMKTS:FRFHF) has given investors a time up to January 13 before buying additional BlackBerry debt, so that the investors could get to know the latest financial information provided by the company on December 20th.

Stock up more than 15% under new CEO Chen

Since taking the helm at Blackberry, Chen has been a leader in many respects, and the stock price, up more than 15% to $9.80 as of today, has responded. In a February 13 ValueWalk report we noted that Chen had compared Blackberry to the “Porsche of Telecoms.”  In the report we noted Chen’s outlook on BlackBerry, saying it serves two key purposes: it has a high functioning keyboard for people who still care more about productivity than the number of apps available to them, and it has the best security in the market. Chen estimates that the regulated industries account for about 30% of all IT spending and figures it should be a comparable percentage for telecom spending. Even if BlackBerry never regains its standing with general consumers, it can be a profitable company by leading a third of the market (the wealthier third, generally speaking).

Sybase should  “Ring a bell” with Blackberry investors

Watsa is optimistic on Chen’s addition to BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) as well, saying Chen “has an extraordinary background.”  Chen, after immigrating from Hong Kong at the age of 16, joined Sybase the stock was down 90% and analysts were predicting bankruptcy.  Within six months Chen turned the company profitable and the company started trading near $6 per share.  After twelve years of profitable management, SAP purchased the stock for $65 per share.  “Ring a bell,” quips Watsa, hoping for a similar outcome at Blackberry.

Since his appointment as Executive Chairman at BlackBerry in November 2013, the report notes John has bolstered the management team, competed a joint venture with FoxConn to manufacture low cost phones for emerging markets, brought back the ‘‘BB Classic’’ phone (the Q20) and publicly said that BlackBerry would break even by the fourth quarter of fiscal 2015 (i.e., the quarter ending January 2015).  “John is on his way – and all BlackBerry shareholders are fortunate that he decided to take the job of saving Canada’s iconic technology company,” Watsa wrote.

Watsa then moves to compare BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) to Twitter Inc (NYSE:TWTR) and other social media firms.  Twitter went public at $26 per share, the letter notes, giving it a market value of $18 billion. Twitter had revenues of $665 million and losses of $645 million on a thinly traded market.  On the day Twitter went public, BlackBerry traded in excess of 100 million shares at $6 per share, giving it a market value of $3 billion. BlackBerry had revenues of approximately $8 billion with cash of $2.6 billion and no debt other than the new convertible debt to be issued. “If you thought that Twitter was grossly overvalued at $26 per share, it promptly doubled and currently is selling at $55 per share, with a market value of $39 billion,” Watsa noted, then said Twitter is just one of many overvalued social media stocks.  “This sort of speculation will end just like the previous tech boom in 1999 – 2000 – very badly!”

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)
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  1. once Apple gets there touch pressure sensitive feature underway, it will work for big fingers. once the system realises pressure then adjacent keys are ignored as to prevent accidental key gesture. when your finger leaves the first key depressed then adjacent keys are then responsive again. Another nice thing is due to the system requiring a little pressure to activate, it will stop the accidentally touching a key twice. Even though it may seem like I’m on Apples side, I’m not. If Prem Watsa wants to win he should investigate a new focus for Blackberry himself, because John C is not doing it.

  2. I agree. I’m waiting to purchase a Blackberry device because I’m a huge Blackberry fan but Blackberry is not giving me what I want. The current Z30 has a good operating system but the device itself is not up to my liking completely. (It feels cheap) Still using my Samsung Note 3 for now. I will not purchase a device with a physical keyboard. Just saying.

  3. lets see that apple keyboard work in practice.. I have huge hands and would be hitting double keys I am sure. I prefer the hard keys of BBRY as there is a tactile feel for my fingers and I am able to key in the words I want with greater accuracy. For me to use that type of keyboard the Iphone will have to grow to the size of my surface tablet 10″. That new keyboard might be better suited to females and also males with feminine hands.

  4. Devv you must have a one track mind. Haven’t you read the news that BB is not in the device business. You and all the pretend journalists cannot see the current news to what was reported previously. They just rehash the old stuff. Too many live in the past. Sadly.

  5. Sybase on profited, not because of Chen its was due to the times (boom in technology).
    Mr Watsa if Blackberry does not launch a type of a device that is not current in the market place they are done. The market is now over bloated with the types of products that Blackberry is trying to launch. The reason the Physical keyboard became obsolete is due to the touchscreen doubled both as a keyboard and viewing area. Now that Apple has found away to detect how hard you press on your device’s screen (pressure sensitive touchscreen) this opens the door to better touch keyboards. Chen do not make a physical keyboard device.

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