Everyone knows that BlackBerry Ltd (NASDAQ:BBRY) is now not even a competitor in the smartphone space, the company has been reduced to a niche player, but still there are a few people who have bet big on BlackBerry and continue to hold their bets. Prem Watsa, Founder of Fairfax Financial Holdings, is one of them. Last year he tried to purchase BlackBerry at $9 per share, but the deal went awry after the due diligence. He still is optimistic about the company as is evident from his continuing stake in BlackBerry’s stocks and his purchase of the company’s convertible debentures. One can catch a glimpse of why Watsa likes BlackBerry Ltd (NASDAQ:BBRY) so much, by going through the annual letter to Fairfax’s shareholders from earlier this year.
One of the primary reason that makes Watsa optimistic about BlackBerry is the credentials of the company’s new CEO, John Chen. Mr. Chen emigrated to the U.S. from Hong Kong at the age of 16, after which he gained a Bachelor’s degree in electrical engineering from Brown and a Master’s from Caltech. His most outstanding achievement is the turnaround of Sybase, When Mr. Chen took over Sybase in 1998, it had lost money for four years, its stock price was down 90% and most analysts were predicting bankruptcy within six months. Within a year, Sybase was profitable and in 2010, 12 years later, SAP bought it at $65 per share, more than ten times the $5 –$6 per share it sold at when Mr. Chen took over. He has also been on the Board of Wells Fargo -which is one of the biggest banks in the World- for eight years and Disney for ten years.
Watsa also enumerates Mr. Chen’s achievements since he took over BlackBerry, which includes a joint venture with Foxconn to manufacture low cost phones for emerging markets, bringing back the ‘‘BB Classic’’ phone (the Q20) and saying publicly that BlackBerry would break even by the fourth quarter of fiscal 2015.
Another thing that makes Watsa optimist is that he feels the market is highly overvaluing tech companies like Twitter Inc (NYSE:TWTR), Facebook Inc (NASDAQ:FB) and others. He provided a sobering comparison between Twitter Inc (NYSE:TWTR) and BlackBerry, which demonstrated in some ways that why BlackBerry is not such a bad bet after all.
“Twitter went public, just after BlackBerry, announced its convertible debt issue, at $26 per share, giving it a market value of $18 billion. It had revenues of $665 million and losses of $645 million, and most investors could not get a single share unless they were very good clients of the major houses underwriting the issue. On that day, 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,” Watsa said in the letter.
Prem Watsa also tried to take BlackBerry Ltd (NASDAQ:BBRY) private last year, although his bid was rejected. He also decided to commit $1.0 billion to invest in the company. According to Fairfax’s latest 13F filing, the fund owns over 46.65 million shares of Blackberry.