By Scott Deveau (Bloomberg) — Fairfax Financial Holdings Ltd., the investment firm run by Prem Watsa, is preparing to increase its investment in Seaspan Corp. by $500 million to help fund the containership owner’s takeover ambitions.
Fairfax plans to exercise warrants to buy 77 million shares in the Hong Kong-based company at $6.50 per share in two phases starting this summer, according to a statement Thursday. It will exercise half in July and the rest in January.
Watsa said he is making the additional investment in Seaspan primarily based on the track record of the company’s Chairman David Sokol. Sokol, the former chairman of Berkshire Hathaway Inc.’s utility operations, took the same role at Seaspan in July as part of a shakeup that saw its co-founder, co-chairman and chief executive officer, Gerry Wang, resign.
“David’s track record is simply outstanding,” Watsa said in an interview.
In the 20 years that Sokol was at the helm of MidAmerican Energy Holdings Co., he grew the company’s assets from $500 million to $50 billion and its revenue from $100 million a year to $11 billion, Watsa said. MidAmerican had a return on equity of 23 percent per year on average over that period, he said.
Watsa noted the company started with just one geothermal plant in 1991. It was acquired by Warren Buffett’s Berkshire Hathaway in 1999, and by the time Sokol left 12 years later the company had pipelines, power plants and natural gas infrastructure under its umbrella.
“He went all the way up the value chain but was smart enough to go where others weren’t going and getting a good return all the time,” he said.
Toronto-based Fairfax acquired the warrants earlier this year through deals to buy $500 million of Seaspan’s debt. Fairfax will receive a new batch of warrants worth about $200 million for exercising the other ones early, according to the statement. The new warrants will give it the right to buy 25 million shares at $8.05 apiece within seven years.
Seaspan shares rose 2.3 percent in early trading Thursday to $9, giving it a market value of about $1.2 billion. The company offers long-term leases on large, modern containerships and other services to major container shipping liners, according to its website. It operates a fleet of 112 containerships.
Sokol said the company plans to use the proceeds from the transaction to look at consolidation in the containership industry. He’s interested in acquiring containership companies as well as the surrounding infrastructure in the sector.
“If I have a criticism of the prior Seaspan team, it was had they had their balance sheet in order two years ago, they could have done a tremendous amount of purchasing of assets over the last 18 months at bargain prices,” he said.
In March, Seaspan agreed to acquire Greater China Intermodal Investments for $380 million. Sokol wouldn’t speculate on how much he’d like to grow the company.
“Seaspan is the largest container owner-operator, leasing company out there by far,” Sokol said. “It’s taken us a little time to get the balance sheet into the right zip code and this investment really makes a big difference.”
© 2018 Bloomberg L.P