Street Capitalist: Event Driven Value Investments

While most market participants are attacking Warren Buffett’s reputation, one really interesting bit of news came out. Fairfax Financial Holdings (NYSE:FFH) would be investing alongside Warren Buffett by purchasing $500 million in convertible senior notes, issued by USG Corp (NYSE:USG). Now, many of you might remember that Fairfax is run by Prem Watsa, one of the great yet underrated and under-recognized investors today. About 75% of my portfolio is concentrated in my Fairfax position, so you already know that I think highly of Watsa and his company.

This USG deal is quite interesting though. In most cases, Berkshire Hathaway (NYSE:BRK.A) does deals like this by itself. In the past, I know that they’ve partnered with Leucadia National Corp. (NYSE:LUK) but it’s really quite rare. At the very least we can probably agree that Buffett thinks positively about Fairfax, since he’s allowing them to invest alongside Berkshire.

From the Globe and Mail:

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…

As for their joint investment, USG Corp. will sell $300-million of convertible senior notes to Berkshire, and a further $100-million to Fairfax.

Watsa teams up with his investing hero (Globe and Mail)

As you can see, things haven’t been so good for USG’s stock price. They’ve been hit hard by the downturn in the housing market, but once things turn, USG will be poised for strong performance. The company has sort of a monopolistic position with their sheetrock products which gives the company a pretty sustainable moat. In addition, after their bankruptcy in 2001, the company was able to shed a lot of terrible liabilities which helps bolster their long term prospects.

This, combined with the fact that Fairfax has recently removed their equity hedges makes me think that Watsa is gradually finding some good opportunities for investing our capital. That’s going to be good news for any other shareholders in Fairfax, especially when they factor in the gains that we’ve made from the financial crisis.