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Making sense of Fairfax’s BlackBerry selloff

Carmi Levy
Making sense of Fairfax’s BlackBerry selloff

When your most ardent investor becomes a little less ardent, is it time to worry?

It’s a question BlackBerry shareholders may be asking themselves after news broke last week that Fairfax Financial Holdings Ltd., once BlackBerry’s largest shareholder, had sold off 10 per cent of its holdings in the Waterloo, Ontario-based smartphone maker.

BlackBerry’s quarterly filing with the U.S. Securities and Exchange Commission confirms Fairfax now holds 46.7 million shares, or 8.9 per cent, making it the second-largest shareholder behind Primecap Management, which according to Thomson Reuters now owns 54.9 million shares for a 10.4 per cent stake.

Not alone

Fairfax wasn’t the only shareholder to shed holdings recently – Third Point LLC, led by American activist fund manager Dan Loeb, unloaded 10 million shares – but its decision to hit the sell button raises the most eyebrows because the insurance and investment holding company has long been one of BlackBerry’s staunchest allies.

Founder and CEO Prem Watsa was appointed to BlackBerry’s board in January 2012, just as Thorsten Heins took over as CEO from Mike Lazaridis and Jim Balsillie, and resigned in August 2013, a month before a Fairfax-led consortium launched an ultimately unsuccessful $4.7 billion bid to buy the company. The billionaire investor, who rejoined the board as lead director in November, spearheaded a group that invested US$1 billion in convertible debt – $250 million from Fairfax itself – late last year. Fairfax invested an additional $250 million in January.

Shifting gears

The financial moves come to light just as BlackBerry opens up another significant chapter in its ongoing transition to an enterprise-focused company. Its decision to allow third-party mobile device management (MDM) vendors to gain access to devices based on the BlackBerry 10 operating system marks another step in the company’s shift toward significantly more open standards and away from its once-sacrosanct strategy of protecting handset sales at all costs.

With BlackBerry Messenger now available as a free download for iOS and Android users, IT administrators struggling with the growing bring-your-own-device (BYOD) trend can now mix and match remote monitoring and control applications and services to support an increasingly diverse range of mobile devices. Last week’s launch of the low-end Z3 handset – the first fruit of its design-and-build partnership with Foxconn – further reinforces BlackBerry’s radical transition since John Chen took over as CEO last November.

MDM set to explode

The company’s strategy positions it to more effectively compete in the burgeoning MDM space. As enterprise workflows shift to mobile platforms, tools and services to manage on-the-go devices and data become more crucial to corporate IT. Data from MarketsandMarkets predicts the global MDM market will almost quadruple in size from $1.01 billion in 2013 to $3.94 billion by 2019, with the broader $72 billion BYOD and enterprise mobility market expected to grow 26 per cent annually and hit $284 billion in the same period. Already the major players are beginning to make significant moves. Google picked up MDM startup Divide over the weekend for an undisclosed amount. AirWatch, a key player expected to benefit from BlackBerry opening up its platform, was snapped up by VMWare in January for $1.54 billion, and IBM bought MDM specialist Fiberlink Communications in November.

No mass exit

Investors adjust their positions constantly as market conditions evolve, so it’s fair to assume both Fairfax and Third Point’s decisions to sell are simply well-considered strategic business moves. But given BlackBerry’s recent history and still-unfolding future, it’s also fair to wonder whether the selloffs are signs of weakening support from once-stalwart investors.

It may not be immediately worrisome – BlackBerry shares continue to trade in a narrow range around $7.25 – but investors would be forgiven for wondering if Watsa sees something they’ve missed. In the meantime, Chen continues to make aggressive moves designed to reshape the company and return it to profitability. Whatever happens in the markets, turnaround-focused BlackBerry has little time or need to worry about it.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca