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Toronto-based insurer Fairfax Financial Holdings Ltd. has teamed up with Berkshire Hathaway Inc. to invest in a U.S. building products company, creating a partnership between the chief executive officer of Fairfax and his investing hero.
“It is our first co-investment with Berkshire,” Fairfax spokesman Paul Rivett said. “We are extremely pleased to be investing in a leading industrial firm with one of the world's great investors.”
Fairfax CEO Prem Watsa is a devotee of Berkshire CEO Warren Buffett, and is often referred to as the Canadian version of the legendary investor, someone he has openly sought to imitate.
But the two firms' investment in Chicago-based USG Corp., which makes wall, ceiling, flooring and roofing products, comes as Berkshire's stock has hit a five-year low amid investor concern about a number of gambles Mr. Buffett is taking.
He has sold derivative contracts to undisclosed buyers for $4.85-billion (U.S.) to protect them against declines in four stock markets. Under the deals, Berkshire will pay as much as $37-billion if, on certain dates starting in 2019, the stock indexes are below the point they were at when Mr. Buffett made the deals.
Berkshire's stock has dropped 30 per cent this month, but Mr. Buffett told Fox Business Network that investors in his company shouldn't be watching that. “If I own a farm here, which I do, I don't get a quote on it every day, you know?” he said. “And it may have gone down 50 per cent at some point. I don't even know about it. I look to the farm and I look to the business to determine the results.”
On Thursday, Fairfax announced that it was removing the hedges on its equity portfolio. “While we believe the recession may be long and deep, we also believe that stock prices may have already discounted the worst of the economic decline,” Mr. Watsa stated.
As for their joint investment, USG Corp. will sell $300-million of convertible senior notes to Berkshire, and a further $100-million to Fairfax. FFH (TSX) fell $4 to $353.
With files from Bloomberg
