Prem and BBRY?

[StubbleJumper]

Shares halted...

 

Big announcement forthcoming...

 

http://www.marketwatch.com/story/blackberry-says-exploring-strategic-alternatives-2013-08-12-8911652

 

Prem Watsa, chairman and CEO of Fairfax Financial, said he will resign because of potential conflicts that may arise during the process.

 

WOW... What price do you think Fairfax will end up offering?

 

Talk about telegraphing intentions.

 

Edit: I only slightly kid.

 

 

Let's hope you're wrong.  The sooner that we're done with RIM, the better.

 

 

SJ

[Cardboard]

Announcing that a company will explore strategic alternatives is often the best way to get a share price lower in coming weeks.

 

While there is a pop today and Friday on the rumour, it is quite probable that the shares will move lower for quite a while afterwards. I have seen this very often. The shares move sharply higher on the announcement, then keep retracing and even go lower sometimes than the price before the announcement.

 

I guess this is due to investors getting discouraged because no news gets announced quickly. The media then gets into it saying that there are few buyers interested and that it is a seller market. Since the process takes time, the stock market finds a way to get weaker during the period making investors think that it must be due to a coming weaker economy and combined with lower share prices of competitors, the thinking changes to: no deal will ever emerge. It is usually then that the opportunity arises to pick shares on the cheap and earn a true premium on the buyout.

 

Just my experience playing these "events" on stocks that I found truly cheap and subject to a buyout possibility.

 

Cardboard

[JRH]

Announcing that a company will explore strategic alternatives is often the best way to get a share price lower in coming weeks.

 

...

 

There are certainly opportunities that often arise due to opacity of those processes, as well as turnover of the shareholder base that often accompanies such turning points.

 

But seriously, with Watsa resigning, what are the chances they bid?  90%?  10%?  A coin flip?  I have my opinion, although I haven't acted on it.

[Grenville]

Announcing that a company will explore strategic alternatives is often the best way to get a share price lower in coming weeks.

 

...

 

There are certainly opportunities that often arise due to opacity of those processes, as well as turnover of the shareholder base that often accompanies such turning points.

 

But seriously, with Watsa resigning, what are the chances they bid?  90%?  10%?  A coin flip?  I have my opinion, although I haven't acted on it.

 

Re Prem: I hope they don't put more money into BBRY through a private bid.

 

I'd be ok with them contributing their stake for private ownership, but with close to $900mln already invested, I will get worried if they add more.

[gg]

anyone know off the top of their head approximately what Prem's cost basis is in BBRY?

[txlaw]

Announcing that a company will explore strategic alternatives is often the best way to get a share price lower in coming weeks.

 

While there is a pop today and Friday on the rumour, it is quite probable that the shares will move lower for quite a while afterwards. I have seen this very often. The shares move sharply higher on the announcement, then keep retracing and even go lower sometimes than the price before the announcement.

 

I guess this is due to investors getting discouraged because no news gets announced quickly. The media then gets into it saying that there are few buyers interested and that it is a seller market. Since the process takes time, the stock market finds a way to get weaker during the period making investors think that it must be due to a coming weaker economy and combined with lower share prices of competitors, the thinking changes to: no deal will ever emerge. It is usually then that the opportunity arises to pick shares on the cheap and earn a true premium on the buyout.

 

Just my experience playing these "events" on stocks that I found truly cheap and subject to a buyout possibility.

 

Cardboard

 

Cardboard, very interesting observation. 

 

We're already seeing a number of analysts coming out and saying that nobody wants to buy BBRY.  In fact, I just watched a Macquarie analyst say that there could be a take under! 

 

If their is an outright sale of the company, I think it would likely be to a strategic buyer vs. private equity.  IMO, this announcement has likely come after there have been discussions with strategics, perhaps to accelerate discussions on sales or JVs.

 

I'm going to post more in the RIM thread.

[Grenville]

anyone know off the top of their head approximately what Prem's cost basis is in BBRY?

 

$17 in the annual report.

[Guest longinvestor]

anyone know off the top of their head approximately what Prem's cost basis is in BBRY?

 

$17 in the annual report.

 

Analysts have vested opinions, esp if they are short. Prem has a huge vested interest in whatever happens to BBRY, it is good to hear that FFH is in no hurry to sell their stake. This must keep the analysts on a tizzy. It should be interesting watch this battle play out.

[DCG]

So now Fairfax wants to take BBRY private? Prem has been in so far over his head with this since day 1, and is becoming a textbook case of why fund managers should not get directly involved with companies.

[gary17]

So now Fairfax wants to take BBRY private? Prem has been in so far over his head with this since day 1, and is becoming a textbook case of why fund managers should not get directly involved with companies.

 

Yes and no....  I think getting involved could help seed the catalyst to unlocking values if done correctly. I believe Warren Buffett, Richard Chandler and others have been involved with companies that they bought...

[Guest valueInv]

So now Fairfax wants to take BBRY private? Prem has been in so far over his head with this since day 1, and is becoming a textbook case of why fund managers should not get directly involved with companies.

 

Yes and no....  I think getting involved could help seed the catalyst to unlocking values if done correctly. I believe Warren Buffett, Richard Chandler and others have been involved with companies that they bought...

 

Buffet is very good at sticking to his circle of competence.

[gary17]

I think Prem definitely overpaid when he started at around $40/share and having to average down.

 

On the other hand, I think many investors think of BBRY as a 'phone company' whereas I tend to think of it as a 'service company' -  it's an essential and difficult to replace service for organizations that require secure communication, and BBRY provides this solution... from the device to the software to the server and to the network connections around the world.  That's the only value I see in BBRY.  And perhaps that's what Prem sees when he added more at $7 / share last year...

 

BBRY's problem is it's lost its focus - instead of focusing on enterprise customers (i.e., develop solutions for enterprise customers who want to use iPhone / Android) - they decided to focus on competing in the consumer sector of the industry. 

 

But it's not beyond saving; with no debt and a lot of cash and reputation in the enterprise sector, they still have a chance.

 

Buffett probably bought IBM thinking it's a necessary service just like credit cards and banking services are.  I could never figure out why he bought BYD.

[DCG]

I've said this before, and will say it again: I think Prem would've had nearly zero interest in this company if it wasn't in Canada.

 

Maybe I'll end up being wrong, but it seems like Prem has continued digging a giant hole with this company to avoid admitting he was completely wrong and moving on.

[Guest wellmont]

I've said this before, and will say it again: I think Prem would've had nearly zero interest in this company if it wasn't in Canada.

 

Maybe I'll end up being wrong, but it seems like Prem has continued digging a giant hole with this company to avoid admitting he was completely wrong and moving on.

 

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center.

[Guest valueInv]

I think Prem definitely overpaid when he started at around $40/share and having to average down.

 

On the other hand, I think many investors think of BBRY as a 'phone company' whereas I tend to think of it as a 'service company' -  it's an essential and difficult to replace service for organizations that require secure communication, and BBRY provides this solution... from the device to the software to the server and to the network connections around the world.  That's the only value I see in BBRY.  And perhaps that's what Prem sees when he added more at $7 / share last year...

 

BBRY's problem is it's lost its focus - instead of focusing on enterprise customers (i.e., develop solutions for enterprise customers who want to use iPhone / Android) - they decided to focus on competing in the consumer sector of the industry. 

 

But it's not beyond saving; with no debt and a lot of cash and reputation in the enterprise sector, they still have a chance.

 

Buffett probably bought IBM thinking it's a necessary service just like credit cards and banking services are.  I could never figure out why he bought BYD.

 

If security is so important why is BBRY selling so little to enterprises now?

 

I work with a lot of people who sold security software through BBRY in another life. I asked them about it. They said a lot of BBRY success was due to push email. There was a time when they were the only platform to offer it. Then Windows opened up ActiveSync for mobile and everyone was able to offer it. BBRY was no longer the only platform. Security was never a the biggest part of the value prop. There are some segments such as govt. where security is paramount. For most others, its just a checkbox.

 

The rest , as you know, is history. 

[Parsad]

I've said this before, and will say it again: I think Prem would've had nearly zero interest in this company if it wasn't in Canada.

 

Maybe I'll end up being wrong, but it seems like Prem has continued digging a giant hole with this company to avoid admitting he was completely wrong and moving on.

 

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center.

 

I think shareholders have to learn not to separate the CEO from his own soul.  Anyone with good conscious, and I'm betting you all expect your CEO's to have good conscious instead of being psychopaths, would agree that sometimes there are battles to be fought that extend beyond the basic role of the CEO.  Otherwise why would Prem or Buffett even entertain things like "The Hospital For Sick Children", "Planned Parenthood", "The Gates Foundation", or "The Glide Foundation"? 

 

In fact, why even do big shin-dig AGM's like they do?  You guys should be treated like Leucadia Shareholders...just an hour of their time every year!  Of course personal stances will play a role at times in their investments and behavior.  Buffett ran Salomon's because he had to save the investment.  This happens and it's nothing new.  RIM is a relatively small investment in the grand scheme of things...Salomon's could have taken Berkshire out if Buffett had not stepped in.  Cheers!

[JBird]

Salomon's could have taken Berkshire out if Buffett had not stepped in.  Cheers!

 

Can you explain this? The wording makes it seem like your saying if Berkshire's Salomon stake went to zero it would've been life or death.

[Guest valueInv]

I've said this before, and will say it again: I think Prem would've had nearly zero interest in this company if it wasn't in Canada.

 

Maybe I'll end up being wrong, but it seems like Prem has continued digging a giant hole with this company to avoid admitting he was completely wrong and moving on.

 

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center.

 

I think shareholders have to learn not to separate the CEO from his own soul.  Anyone with good conscious, and I'm betting you all expect your CEO's to have good conscious instead of being psychopaths, would agree that sometimes there are battles to be fought that extend beyond the basic role of the CEO.  Otherwise why would Prem or Buffett even entertain things like "The Hospital For Sick Children", "Planned Parenthood", "The Gates Foundation", or "The Glide Foundation"? 

 

In fact, why even do big shin-dig AGM's like they do?  You guys should be treated like Leucadia Shareholders...just an hour of their time every year!  Of course personal stances will play a role at times in their investments and behavior.  Buffett ran Salomon's because he had to save the investment.  This happens and it's nothing new.  RIM is a relatively small investment in the grand scheme of things...Salomon's could have taken Berkshire out if Buffett had not stepped in.  Cheers!

 

It's one thing for a guy with a background in finance and investing to attempt to turn around an investment back, its another for a guy with the same background to turn around a mobile device company.

 

There is no question that BBRY needs a savior. The question is whether Prem is the guy.

 

BBRY may be a small investment now but it probably won't be if Prem tries to take it private.

 

[Parsad]

Salomon's could have taken Berkshire out if Buffett had not stepped in.  Cheers!

 

Can you explain this? The wording makes it seem like your saying if Berkshire's Salomon stake went to zero it would've been life or death.

 

Not life and death in the best case scenario, but would have significantly affected their insurance business and possibly their credit rating.  $750M hit on $7B in equity.  In the worst case scenario, counterparty liabilities just like we saw during the credit crunch, could have taken out a lot of financial institutions...once again, Berkshire would have been the last one standing, but the risk was there.  Cheers!

[DCG]

I've said this before, and will say it again: I think Prem would've had nearly zero interest in this company if it wasn't in Canada.

 

Maybe I'll end up being wrong, but it seems like Prem has continued digging a giant hole with this company to avoid admitting he was completely wrong and moving on.

 

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center.

 

I think shareholders have to learn not to separate the CEO from his own soul.  Anyone with good conscious, and I'm betting you all expect your CEO's to have good conscious instead of being psychopaths, would agree that sometimes there are battles to be fought that extend beyond the basic role of the CEO.  Otherwise why would Prem or Buffett even entertain things like "The Hospital For Sick Children", "Planned Parenthood", "The Gates Foundation", or "The Glide Foundation"? 

 

In fact, why even do big shin-dig AGM's like they do?  You guys should be treated like Leucadia Shareholders...just an hour of their time every year!  Of course personal stances will play a role at times in their investments and behavior.  Buffett ran Salomon's because he had to save the investment.  This happens and it's nothing new.  RIM is a relatively small investment in the grand scheme of things...Salomon's could have taken Berkshire out if Buffett had not stepped in.  Cheers!

 

It may be a relatively small investment financially, but it sure seems like its taking up a good amount of his time.

 

Investors need to take their emotions out of investing, and it seems like Prem has not been doing this the last few years. He comes up with theses (like his expectation of deflation he's been preaching for the last 6 or so years) and seems to not want to admit he's wrong and move on.

[TwoCitiesCapital]

I've said this before, and will say it again: I think Prem would've had nearly zero interest in this company if it wasn't in Canada.

 

Maybe I'll end up being wrong, but it seems like Prem has continued digging a giant hole with this company to avoid admitting he was completely wrong and moving on.

 

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center.

 

I think shareholders have to learn not to separate the CEO from his own soul.  Anyone with good conscious, and I'm betting you all expect your CEO's to have good conscious instead of being psychopaths, would agree that sometimes there are battles to be fought that extend beyond the basic role of the CEO.  Otherwise why would Prem or Buffett even entertain things like "The Hospital For Sick Children", "Planned Parenthood", "The Gates Foundation", or "The Glide Foundation"? 

 

In fact, why even do big shin-dig AGM's like they do?  You guys should be treated like Leucadia Shareholders...just an hour of their time every year!  Of course personal stances will play a role at times in their investments and behavior.  Buffett ran Salomon's because he had to save the investment.  This happens and it's nothing new.  RIM is a relatively small investment in the grand scheme of things...Salomon's could have taken Berkshire out if Buffett had not stepped in.  Cheers!

 

It may be a relatively small investment financially, but it sure seems like its taking up a good amount of his time.

 

Investors need to take their emotions out of investing, and it seems like Prem has not been doing this the last few years. He comes up with theses (like his expectation of deflation he's been preaching for the last 6 or so years) and seems to not want to admit he's wrong and move on.

 

I think this is disingenuous.

 

1) He bought deflation hedges with a maturity of 10 years for a reason. It hasn't been 10 years yet so it's hard to say he's absolutely wrong on these - no? Secondly, it was to hedge his business - not necessarily to maximize investment gains. As I recall it took years for him to be "right" on the CDS too, but that protected Fairfax from the financial crisis AND provided huge profits. I'm not saying that it will happen again, but I think it's clear from U.S. GDP coming in at 1% in Q1 despite a "recovering housing market" and trillions in stimulus that there is still a very real deflationary threat. Same could be said for your Europe if we see another spike in interest rates like we did in 2011 where the borrowing costs of Italy and others nearly doubled in the span of weeks. As Prem is fond of pointing out - it took years for Japan to experience deflation. These aren't events that occur overnight. They're long-term secular trends.

 

2) On Blackberry, just because he was wrong to invest at $40 doesn't mean he was wrong to double down at $7, nor does it mean he's emotionally attached to have done so. By becoming involved (and by buying at such a cheap price) he had the potential to mitigate the losses from the original investments and possibly turn a profit. In a sense, he was limiting his downside while amplifying his upside. It wasn't that long ago that BBRY was pushing over $1B in FCF a year. Right now it sports an EV of just $2B. If it ever recovers to some sustainable shadow of it's former self, it will be seen that Prem got a ridiculous price for the company at $7 and probably a good price at his average of $17. If the company fails, chances are he still makes money on the shares bought at $7 and he was able to mitigate the losses with some small gains while retaining upside potential. I don't see how this equates to being emotionally attached...the liquidation value of the company is quite clearly more than $7 and probably more than the $10 it trades at.

 

 

[Guest longinvestor]

I've said this before, and will say it again: I think Prem would've had nearly zero interest in this company if it wasn't in Canada.

 

Maybe I'll end up being wrong, but it seems like Prem has continued digging a giant hole with this company to avoid admitting he was completely wrong and moving on.

 

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center.

 

I think shareholders have to learn not to separate the CEO from his own soul.  Anyone with good conscious, and I'm betting you all expect your CEO's to have good conscious instead of being psychopaths, would agree that sometimes there are battles to be fought that extend beyond the basic role of the CEO.  Otherwise why would Prem or Buffett even entertain things like "The Hospital For Sick Children", "Planned Parenthood", "The Gates Foundation", or "The Glide Foundation"? 

 

In fact, why even do big shin-dig AGM's like they do?  You guys should be treated like Leucadia Shareholders...just an hour of their time every year!  Of course personal stances will play a role at times in their investments and behavior.  Buffett ran Salomon's because he had to save the investment.  This happens and it's nothing new.  RIM is a relatively small investment in the grand scheme of things...Salomon's could have taken Berkshire out if Buffett had not stepped in.  Cheers!

 

It may be a relatively small investment financially, but it sure seems like its taking up a good amount of his time.

 

Investors need to take their emotions out of investing, and it seems like Prem has not been doing this the last few years. He comes up with theses (like his expectation of deflation he's been preaching for the last 6 or so years) and seems to not want to admit he's wrong and move on.

 

I think this is disingenuous.

 

1) He bought deflation hedges with a maturity of 10 years for a reason. It hasn't been 10 years yet so it's hard to say he's absolutely wrong on these - no? Secondly, it was to hedge his business - not necessarily to maximize investment gains. As I recall it took years for him to be "right" on the CDS too, but that protected Fairfax from the financial crisis AND provided huge profits. I'm not saying that it will happen again, but I think it's clear from U.S. GDP coming in at 1% in Q1 despite a "recovering housing market" and trillions in stimulus that there is still a very real deflationary threat. Same could be said for your Europe if we see another spike in interest rates like we did in 2011 where the borrowing costs of Italy and others nearly doubled in the span of weeks. As Prem is fond of pointing out - it took years for Japan to experience deflation. These aren't events that occur overnight. They're long-term secular trends.

 

2) On Blackberry, just because he was wrong to invest at $40 doesn't mean he was wrong to double down at $7, nor does it mean he's emotionally attached to have done so. By becoming involved (and by buying at such a cheap price) he had the potential to mitigate the losses from the original investments and possibly turn a profit. In a sense, he was limiting his downside while amplifying his upside. It wasn't that long ago that BBRY was pushing over $1B in FCF a year. Right now it sports an EV of just $2B. If it ever recovers to some sustainable shadow of it's former self, it will be seen that Prem got a ridiculous price for the company at $7 and probably a good price at his average of $17. If the company fails, chances are he still makes money on the shares bought at $7 and he was able to mitigate the losses with some small gains while retaining upside potential. I don't see how this equates to being emotionally attached...the liquidation value of the company is quite clearly more than $7 and probably more than the $10 it trades at.

 

Excellent post! Prem will have his day, again; If not on these calls, on other things. Big deal!

 

The real thing here is that the frequency of message board posting >>>> the pace at which investments work out or not.

 

The ingrained "will not risk principal" is a rare trait. Why my money is with Prem. I don't know of 5 names, I've found two and that's enuff for me.

[james22]

I like FRFHF at 1.1 P/B.

 

But if Prem takes BBRY private, isn't the market reaction likely negative?

 

(Markel bought Alterra and MKL dropped 10%.)

 

Buy now at a fair price or wait until BBRY's future resolved?

[Guest valueInv]

I've said this before, and will say it again: I think Prem would've had nearly zero interest in this company if it wasn't in Canada.

 

Maybe I'll end up being wrong, but it seems like Prem has continued digging a giant hole with this company to avoid admitting he was completely wrong and moving on.

 

agree 100%. even the greatest investors are not automatons. there is no way he would have taken a big stake in this technology company without personal relationships being front and center.

 

I think shareholders have to learn not to separate the CEO from his own soul.  Anyone with good conscious, and I'm betting you all expect your CEO's to have good conscious instead of being psychopaths, would agree that sometimes there are battles to be fought that extend beyond the basic role of the CEO.  Otherwise why would Prem or Buffett even entertain things like "The Hospital For Sick Children", "Planned Parenthood", "The Gates Foundation", or "The Glide Foundation"? 

 

In fact, why even do big shin-dig AGM's like they do?  You guys should be treated like Leucadia Shareholders...just an hour of their time every year!  Of course personal stances will play a role at times in their investments and behavior.  Buffett ran Salomon's because he had to save the investment.  This happens and it's nothing new.  RIM is a relatively small investment in the grand scheme of things...Salomon's could have taken Berkshire out if Buffett had not stepped in.  Cheers!

 

It may be a relatively small investment financially, but it sure seems like its taking up a good amount of his time.

 

Investors need to take their emotions out of investing, and it seems like Prem has not been doing this the last few years. He comes up with theses (like his expectation of deflation he's been preaching for the last 6 or so years) and seems to not want to admit he's wrong and move on.

 

I think this is disingenuous.

 

1) He bought deflation hedges with a maturity of 10 years for a reason. It hasn't been 10 years yet so it's hard to say he's absolutely wrong on these - no? Secondly, it was to hedge his business - not necessarily to maximize investment gains. As I recall it took years for him to be "right" on the CDS too, but that protected Fairfax from the financial crisis AND provided huge profits. I'm not saying that it will happen again, but I think it's clear from U.S. GDP coming in at 1% in Q1 despite a "recovering housing market" and trillions in stimulus that there is still a very real deflationary threat. Same could be said for your Europe if we see another spike in interest rates like we did in 2011 where the borrowing costs of Italy and others nearly doubled in the span of weeks. As Prem is fond of pointing out - it took years for Japan to experience deflation. These aren't events that occur overnight. They're long-term secular trends.

 

2) On Blackberry, just because he was wrong to invest at $40 doesn't mean he was wrong to double down at $7, nor does it mean he's emotionally attached to have done so. By becoming involved (and by buying at such a cheap price) he had the potential to mitigate the losses from the original investments and possibly turn a profit. In a sense, he was limiting his downside while amplifying his upside. It wasn't that long ago that BBRY was pushing over $1B in FCF a year. Right now it sports an EV of just $2B. If it ever recovers to some sustainable shadow of it's former self, it will be seen that Prem got a ridiculous price for the company at $7 and probably a good price at his average of $17. If the company fails, chances are he still makes money on the shares bought at $7 and he was able to mitigate the losses with some small gains while retaining upside potential. I don't see how this equates to being emotionally attached...the liquidation value of the company is quite clearly more than $7 and probably more than the $10 it trades at.

How do you get a liquidation value of $7? And how is Prem going to buy the company at $7?

[SharperDingaan]

Keep in mind that if FFH is part of a privatization, you are not going to see BB's numbers. It will show up in the FFH portfolios as X% of company Y, & the X will be < 10% to avoid disclosure requirements. Doesn't mean that FFH could not end up with > 10%, but it will be split between different legal entities (junior & senior entities) & investment vehicles (common, pref's, deb's, etc.)