BUSINESS

Dissident RIM shareholder says increased involvement of Fairfax is a good start

01/27/2012 09:43 EST | Updated 03/28/2012 05:12 EDT
An activist shareholder pushing for major changes at Research In Motion (TSX:RIM) says he's encouraged that Fairfax Financial Holdings Ltd. and its founder Prem Watsa have doubled their stake in the BlackBerry maker since it installed a new chief executive officer last weekend.

Vic Alboini, who says his calls for reform at RIM are shared by shareholders with about 10 per cent of the company's stock, said Watsa's bigger stake in RIM is positive and he hopes the Fairfax founder becomes influential in determining the smartphone company's future.

"Buying a bigger stake is very good because he is investing, surely, to generate a very good return and I see that as positive overall for the stock," said Alboini, chief executive of Toronto-based Jaguar Financial Corp.

"It's a question of the extent to which he wants to make change now or later. We're hoping it would be closer to now," Alboini said.

RIM has been losing consumers to Apple's iPhone and Google-powered Android smartphones especially in the United States, where the Canadian company's market share has fallen to about 10 per cent.

A filing with U.S. regulators on Friday showed that Watsa, Fairfax (TSX:FFH) and affiliated companies boosted their holdings in Research In Motion (TSX:RIM) by about 14 million shares in two transactions, on Wednesday and Thursday.

As a result, the group of companies that Watsa heads boosted its stake in RIM to 26.85 million shares, or about 5.12 per cent of RIM's outstanding shares. Based on Thursday's closing price at the Toronto Stock Exchange, the shares controlled by Watsa and Fairfax would be worth about $437 million.

Watsa could not be reached for comment on Friday but a Fairfax spokesman said the company doesn't anticipate buying more RIM shares at this time.

Watsa's move could create a powerful bloc of Canadian shareholders who together hold more than 15 per cent of RIM's stock — former co-CEOs Jim Balsillie and Mike Lazaridis and now Watsa through Fairfax.

But it could also provide a challenge to Balsillie and Lazaridis if he sides with investors, such as Alboini, who says they still wield too much influence at RIM.

Balsillie and Lazaridis stepped aside as RIM's co-CEOs on Sunday but remain on the board of directors. Watsa was added to the board at the same time.

RIM's new CEO, Thorsten Heins, who has been part of the company's senior management team since 2007.

Alboini said a total of 16 like-minded shareholders, including Jaguar Financial, own more than 10 per cent of RIM and are pushing for a revamped board and a strategic review of the company, which would include a possible sale.

"Those are things that our supportive shareholders are most interested in," Alboini said. "There are no agreements between any of them to buy or sell shares. They act on their own accord. The focus of the 16 is to cause the change that I just mentioned."

Alboini said RIM's new chairwoman, Barbara Stymiest, still needs to revamp the company's board with at least three directors stepping down, including Balsillie. That should take place by RIM's annual meeting in July, he said.

"The time has come for that," he said of a possible exit by Balsillie from RIM.

Analyst Neeraj Monga of Veritas Investment Research said Watsa's increased stake will make it harder for unhappy shareholders to push for change.

"With Mike, Jim Balsillie and other directors still behind the current management team and clearly given the revered position of Research In Motion in the Canadian technology space and Mike's position as creator of the global smartphone business _ it will be very difficult for Jaguar to continue to agitate," Monga said.

"If there is longer term value to be created in that company, they have to be given the chance to create it," Monga said.

But Ross Healy, CEO of Strategic Analysis Corp., said Watsa's increased stake in RIM doesn't make it more difficult for shareholders to push for change.

"In essence, the shareholders have hopefully found their agent of change which is in Prem," Healy said.

"They can vent their unhappiness with the hope and belief that Prem is there acting on their behalf."

Unhappy shareholders may be "more relaxed" now and give the company some breathing room, Healy said from Toronto.

But RIM's turnaround will depend on the success of RIM's new generation of smartphones out later this year, he said.

According to the most recently available public information compiled by Thomson Reuters, California-based investment firm Primecap Management was RIM's largest single shareholder with about 29 million shares as of Sept. 30.

Balsillie was the second-largest number of shares with about 26.7 million and Lazaridis, who co-founded the company, was the third-largest with 26.5 million shares as of last May.

Fairfax, which had about 11.2 million shares as of Sept. 30, purchased nearly 6.5 million shares on Wednesday and another 7.55 million shares on Thursday, according to a filing with U.S. regulators.

RIM shares gained 45 cents, or 2.8 per cent, to $16.75 in afternoon trading Friday but remained about $1 below where they were a week ago prior, to RIM's weekend announcement introducing Heins as RIM's chief executive.

Fairfax chief legal officer Paul Rivett said RIM is a "great company" at current market prices but Fairfax has no intention of buying more shares at this time.

"For now we're going to continue to evaluate," Rivett said.

Fairfax has recently bought a 25 per cent stake in Bangkok-based Thai Re — which provides reinsurance coverage for companies that provide property, casualty, engineering, marine, and life insurance.

In December, the company announced it would take control of privately owned Sporting Life and it outbid the owner of Swiss Chalet to buy the company behind East Side Mario's and Casey's restaurants, and an earlier purchase of Toronto-based William Ashley China.

Fairfax joined several other investors last summer in buying a 34.9 per cent stake in the Bank of Ireland for $1.58 billion. It also has stakes in a series of companies around the world, including Wells Fargo, Johnson & Johnson, Kraft Foods and US Bancorp.