September 24, 2013 8:08 pm

Value investment guru faces biggest challenge

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Prem Watsa©Bloomberg

Fairfax Financial’s plan to lead a buyout of BlackBerry, and its attempt to revive an $880m investment that has halved in value, poses a restructuring challenge bigger than any previously faced by Prem Watsa, the Canadian insurer’s feted chief executive.

The value investment guru, known in Canada as the “Warren Buffett of the north”, has intervened when investments have gone wrong in the past, but the scale of the turnround required at BlackBerry has left analysts sceptical.

“We are concerned about the company’s liquidity position if a deal is not consummated immediately,” said Macquarie analyst Kevin Smithen. “Any potential buyer might have to fund another $500m-$1bn in cash outflows to completely exit the hardware business.”

Mr Watsa runs a $24bn portfolio of bonds, stocks and operating businesses. He prefers to act as a cheerleader for the managements of the companies in which he invests, singing their praises in Buffett-like annual letters to his shareholders. His biggest successes to date have been large market calls, such as predicting Japan’s decline in the 1990s and, pre-financial crisis, taking large bets against the overheated credit markets through the credit default swaps.

His previous turnround efforts have been small, such as the Canadian furniture store chain The Brick. Fairfax owned a 13 per cent stake in 2008 when it hit what Mr Watsa called “a pothole”. Fairfax helped recapitalise the company the following year.

Yet Mr Watsa does not shy away from distressed situations. He participated in the 2011 rescue of Bank of Ireland, just as the ailing bank was on the verge of being nationalised.

Mr Watsa said this week that BlackBerry would be best served by repairing its business away from the public markets.

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