Fairfax Financial Plans Share Buyback

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A day after Fairfax Financial Holdings Ltd (TSE:FFH) (OTCMKTS:FRFHF) made news by submitting a bid for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), valuing the company at $4.7 billion, the holding company is back in the news with a plan to buy back up to five percent of its outstanding shares in the company.

Fairfax financial share buyback

The firm is leading a consortium of investors to take BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) private by paying $9 per share for the once leading smartphone manufacturer. It is far from a done deal and will require months of diligence; in the meantime, it seems that Fairfax Financial Holdings Ltd (TSE:FFH) (OTCMKTS:FRFHF) believes its time to get its own house in order and take more control of its future.

The Toronto-based company says it’s seeking regulatory approval to buy back up to 800,000 subordinate shares.

Based on Monday’s closing price of $420.45, the maximum buyback would cost Fairfax Financial Holdings Ltd (TSE:FFH) (OTCMKTS:FRFHF) about $336.4 million and represent about five percent of the public float.

The actual number and price will depend on prevailing market conditions during the normal course issuer bid, which would run for a year starting September 26.

Under Fairfax Financial Holdings Ltd (TSE:FFH) (OTCMKTS:FRFHF)’s previous share buyback program, it paid an average of $370.15 to purchase 116,391 of the shares for a total of about $43 million.

Fairfax Financial Holdings Ltd (TSE:FFH) (OTCMKTS:FRFHF) has been under the same management since 1985 and has assets estimated in the neighborhood of $32 billion.

Fairfax shares book value

The buyback makes a tremendous amount of sense given that Fairfax Financial’s book value per share has compounded by 23 percent per year, while the common stock price has followed the growth at 19 percent per year over the same time period.

Of its 8,200 employees worldwide, over 5000 of them live and work in the United States. The Canadian company has only 30 employees working from its headquarters in Canada.

BlackBerry foreign sales

However, its Canadian base makes it a perfect suitor for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB), given Canadian issues with a foreign sale of the smartphone manufacturer.

Whether Fairfax walks away from BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) or lowers its offer following diligence is anyone’s guess, but if it completes this buyback within the next few months, it will have fewer shareholders in a position to argue against the purchase. The skeptic might even suggest that the BlackBerry offer was made to drive Fairfax Financial Holdings Ltd (TSE:FFH) (OTCMKTS:FRFHF)’s shares lower for the buyback, only for it to decide against its acquisition.

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