January 27, 2012 / 3:41 PM / 8 years ago

Prem Watsa's Fairfax ups RIM stake

TORONTO (Reuters) - Fairfax Financial, the firm controlled by investor Prem Watsa, has more than doubled its stake in Research in Motion, a vote of confidence in the struggling BlackBerry maker that drove RIM’s shares up nearly 3 percent on Friday.

A sign of Research in Motion (RIM) is seen at its headquarters in Waterloo, Ontario, January 22, 2012. REUTERS/Geoff Robins

The purchase, revealed in a U.S. regulatory filing, gives Fairfax a holding on par with longtime co-CEOs Mike Lazaridis and Jim Balsillie.

Watsa, Fairfax’s reclusive CEO and a highly-regarded investment mind, was appointed to the struggling BlackBerry maker’s board this week as part of a front office shakeup in which Balsillie and Lazaridis stepped down from their roles at the company’s helm.

“I think it’s a good confidence booster,” Ian Nakamoto, director of research at Toronto broker MacDougall, MacDougall & MacTier, said of the share purchase, which gives Fairfax 5.12 percent of RIM. That is worth just under $450 million at Friday’s prices.

RIM’s largest shareholder is U.S. money manager Primecap Management Co, with a 5.54 percent stake.

Balsillie and Lazaridis hold 5.09 percent and 5.05 percent, respectively, according to Reuters data. Fairfax had held 2.25 percent of the company as of the end of September.

CREDIBILITY

Watsa, an Indian-born Canadian who took control of Fairfax in 1985, has built a reputation as a shrewd value investor in the mold of U.S. investor Warren Buffett.

He made billions for the company by correctly calling the 2008 U.S. mortgage crisis, and he has been willing to make contrarian investments, such as last year’s purchase of a 9 percent stake in troubled Bank of Ireland.

“It means a very astute, very deep-value investor has the sense that this is a company that’s going to continue to play a role in the global smartphone market and is ridiculously cheap,” said Paul Taylor, chief investment officer for BMO Harris Private Banking.

That said, he suggested Watsa’s involvement may only go so far in restoring the company’s lost momentum.

RIM is due to deliver updated software for its poorly selling PlayBook tablet next month and plans to launch smartphones using the PlayBook’s QNX-based operating system later in the year.

“If they don’t hit those milestones, they’re dead in the water,” Taylor said.

RIM’s Toronto-listed shares were up 48 Canadian cents at C$16.76 on Friday, making up some of the ground lost since the management shuffle was announced on Sunday.

Investors have been cool on the appointment of Thorsten Heins as new CEO. Heins, RIM’s former chief operating officer, is seen as an insider who may be unwilling or unable to reverse the decline in RIM’s fortunes.

The company’s once-dominant position in the smartphone market has been eroded by competitors like Apple, and the stock is nearly 90 percent below its 2008 all-time high.

ACTIVIST CAMPAIGN

Even so, the departure of Mike Lazaridis and Jim Balsillie from the helm could deflate an activist campaign for radical change led by Jaguar Financial’s Vic Alboini, the public face of an ad-hoc alliance of Research In Motion investors.

“There may be members of that group that back away and allow the changes to work their way through the system,” BMO Harris’ Taylor said.

But he added the shuffle could also embolden the secretive group as it seeks a breakup or outright sale at RIM.

“The changes that have taken place probably fuel the activist intervention in that they would claim some responsibility for the changes they did come to pass,” he said.

Alboini, who says his supporters have a total of about 10 percent of the shares, plans to hunker down for the long fight. Jaguar itself won’t disclose how many shares of RIM it owns.

“This group is not going anywhere,” Alboini, the CEO of tiny Northern Financial and its Jaguar Financial subsidiary, told Reuters soon after the news of the co-CEOs exit. “It’s early days.”

TURNAROUND

Watsa’s arrival on the board has been a bit of an offset to the negative sentiment surrounding the CEO shuffle, although observers point out his reputation has been built largely on his market calls, rather than as a corporate turnaround artist.

“It makes for great news headlines, but just because Prem’s investing in it doesn’t mean it’s a turnaround situation,” said one analyst who did not want to be identified.

While Fairfax has made wise moves such as selling much of its stock holdings ahead of the 1987 market crash and hedging itself against the Tokyo market’s collapse in 1990, it had to write off most its investment in Winnipeg-based media company Canwest in 2009 as the company filed for bankruptcy protections.

It also wrote down a significant investment in publisher Torstar in 2008-09 and took losses on its holding of forestry company Abitibi Bowater.

“His track record in terms of individual investments is maybe a bit spotty. Really where he’s created the value over the years is through his macro calls,” the analyst said.

While the Bank of Ireland investment is still early days and it wasn’t clear the price Fairfax paid for the stake, the bank’s shares are up nearly 13 percent since Fairfax made the purchase in July.

Additional reporting by Maneesha Tiwari in Bangalore; Editing by Frank McGurty and Janet Guttsman

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