- Canada’s “Warren Buffett” could benefit hugely from the BlackBerry stock boom.
- Prem Watsa’s Fairfax Financial owns BlackBerry shares and convertible bonds.
- The company’s potential 16% stake was worth up to $ 2 billion on Thursday.
- See more stories on the Insider business page.
A billionaire investor hailed “Canada’s Warren Buffett” on the verge of making a fortune on BlackBerry after an agonizing seven-year wait, thanks to day traders who pushed his stock price higher this week.
Prem Watsa is the founder and CEO of Fairfax Financial, an insurance conglomerate modeled on Buffett’s Berkshire Hathaway. Fairfax owns 46.7 million shares of BlackBerry as of March 31, giving it an 8% stake in the enterprise software group. BlackBerry is its second largest holding, accounting for 14% of its US equity portfolio.
Fairfax also owns BlackBerry Bonds which it can convert into 55 million shares at a price of $ 6 per share. If he converts all of those bonds, he would have 102 million shares or more than 16% of the outstanding shares of BlackBerry.
Read more: Warren Buffett’s Berkshire Hathaway has $ 140 billion in cash, but he has withdrawn billions from Apple, Costco and Chevron. Seasoned investor Chris Bloomstran explains why cash is not excessive and sales make sense.
Watsa, who sits on BlackBerry’s board of directors, revealed on an April earnings call that the bet cost him $ 10 per share. He attempted to buy the entire company for $ 4.7 billion in 2013, but ended up investing $ 1 billion in the company in November of that year.
The Fairfax chief would have liked to sell at least part of his stake in BlackBerry in January, when the meme stock frenzy pushed his stock price from under $ 7 to nearly $ 29 all the way up. However, Fairfax was prevented by SEC rules from making a profit on its shares because it traded an old batch of bonds for its current set last September.
The “short-term profit rule” requires insiders who own at least 10% of a company – and buy and sell its stock within six months – to return any profits they make to the company. It is designed to prevent the use of inside information for short-term profit purposes.
“There was no way we checked it 10 times,” Watsa replied when an analyst on the earnings call asked if he had sold BlackBerry stock. “We had no choice but to wait.”
Read more: Wealth Manager of $ 12 Billion Firm Shares 3 Stocks That Should Thrive When Corporate Taxes Rise – And Says All Are At Least 15% Up From Current Levels
Now that the six-month window has passed, it would seem logical that Watsa would cash in on some of his BlackBerry stock. The company’s stock price climbed to $ 20 on Thursday, its highest level in nine years, off the January peak.
Fairfax’s 46.7 million shares would net more than $ 900 million at that price. If the company converted all of its bonds, its 102 million shares would be worth more than $ 2 billion. That would represent a profit of about $ 1.2 billion for Watsa, based on its cost base of $ 10 per share and the cost of $ 330 million to convert the bonds.
The irony is that Watsa, a value investor who stubbornly owned BlackBerry for seven long years, might finally make money because a group of day traders speculate heavily on stocks even for fun.