Fairfax bets US$500M on container ship owner

Fairfax Financial Holdings Ltd., the investment firm run by Prem Watsa, is preparing to increase its investment in Seaspan Corp. by US$500 million to help fund the container ship owner’s takeover ambitions.

Fairfax plans to exercise warrants to buy 77 million shares in the Hong Kongbased company at US$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 US$500 million to US$50 billion and its revenue from US$100 million a year to US$11 billion, Watsa said. MidAmerican had a return on equity of 23 per cent 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 US$500 million of Seaspan’s debt. Fairfax will receive a new batch of warrants worth about US$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 US$8.05 apiece within seven years.

Seaspan shares rose 2.3 per cent in early trading Thursday to US$9, giving it a market value of about US$1.2 billion. The company offers long-term leases on large, modern container ships and other services to major container shipping liners. It operates a fleet of 112 container ships.

Sokol said the company plans to use the proceeds from the transaction to look at consolidation in the container ship industry. He’s interested in acquiring container ship companies as well as infrastructure.

“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.