giofranchi

Good results indeed!... But unfortunately I need more than a quarter… I want to see debt going down and staying low for at least a year… I want to see convincing organic growth for at least a year… I want to see GAAP earnings closing the gap with adjusted for at least a year… Then, I would feel safe saying I truly understand the business. Unfortunately, though we might now monitor how the Salix and Dendreon acquisitions perform, because their results might be separately disclosed, debt will go up again, and the gap between adjusted and GAAP earnings will widen again… But I understand they are opportunistic, and I think they will do very well going forward… I simply guess in this environment of high debts everywhere I must regretfully admit that such an outstanding compounding machine is out of my circle of competence. Gio

Well, if you participate fully, I think it does! Because you get the chance of buying at a price that might be well below BVPS after all the rights have been exercised, and therefore after all the new shares have been issued. If you then exercise your oversubscription rights too, it gets even more interesting! ;) Gio

NBL, Just a curiosity: first you say you own far more BH shares than Groveland, than you say BH is a small position of yours… You have a pretty large investment portfolio, haven’t you?! ;D ;) Cheers, Gio

Ok! I understand your point! I get greedy sometimes! ;D ;) Gio

Sanjeev, I know… But I care much more about “cash” and “rationality”… If Biglari keeps making “rational” business choices, and doesn’t take too much “cash” out of the company as personal compensation… I simply don’t see how shareholders couldn’t help but making lots of money. I repeat: if and when I see a lack of business “rationality” and/or a compensation that would mean not enough cash flow left for the remaining shareholders… then I am gone! ;) Cheers, Gio

twacowfca, sorry I don't understand the expression… Could you please let me know what it means exactly? ;) Thank you! Gio

Who is to blame? The company or anyone short of cash? ;) Gio

Of course it does! But imo rights offerings are a wonderful way to let existing shareholders invest more in their company at an attractive price. Therefore, I want the management of my investments to make use of them whenever the right opportunity comes. The company is selling new shares to existing shareholders, not to new shareholders, therefore it can sell them at a very advantageous price! And existing shareholders should recognize a bargain when their company offers one… If they don’t, and decide not to participate, who is to blame? The company or its uninterested existing shareholders? Gio

This is a very difficult book, very tough subject! But it surely is a very important book as well. Imo anyone should read it. And I am extremely glad I have read it. Cheers, Gio

I had thought (and hoped) the plan was to withdraw from major acquisitions for more or less a year, to concentrate on the existing businesses, to let them show their strengths, and in the meantime to get a cleaner balance sheet, gradually reducing VRX debt… Then, to target a new large company as the possible next major acquisition. I would have loved to see that plan being carried out! Not because otherwise I doubt VRX might continue to be a fantastic success… I truly think it will! But simply because it would have rendered the whole picture easier for me to understand. In other words, I am not comfortable with debt, and I am not comfortable with a serial acquirer… Unless I see the evidence that both debt can be reduced very quickly, if needed, and the company can grow solely through the earnings generated by its existing businesses, if needed. I had hoped to gain that insight from 10-12 months without a major acquisition… but evidently Pearson doesn’t want to lose time! ;) Imho a pity! Gio

Shalab, Sincerely at this point I don't care much about what Gabelli says or does, about what Groveland says or does... About what pretty almost anyone says or does... What I truly care about is that Biglari concentrates on business only, not being worried nor bothered by politics at all. And I want to monitor with a critical eye all decisions of his. If I see rational business decision making, I have no doubt I'll make lots of money. If and when I start to see judgments on his part that fall short in rationality, I will sell my shares and move on. It is that simple, though not easy! ;) Gio

If I am not wrong, BH doesn't pay the 2% part of the 2&20 compensation agreement usually employed by money managers. Am I wrong? Gio

Yes, as I have said before, I would like to pay Biglari less for his services... But let me ask a question: with the exception of Buffett, Watsa, Marks, Malone, and a handful of few others, do you believe Biglari's compensation is above, in line, or below the compensation of the average CEO and the average money manager? Thank you, Gio

Pete, Usually rights are offered at much lower prices... Biglari, for instance, has offered for the second year in a row the rights to buy BH stocks at a price far below BVPS after all the rights were exercised. This is why I would have preferred this solution. ;) Gio

I'm inclined to agree. Mmm… With an oversubscription right, which investors like me would have gladly exercised to the maximum extent possible, I think the risk of not selling all the new shares was very low… Moreover for a deal that clearly makes a lot of sense! Rights offerings imho are always to be preferred… But now I will leave it at that! ;) Cheers, Gio

http://seekingalpha.com/article/2934916-lancashire-holding-9-percent-hot-pot-dividend-yield-and-takeover-target?app=1&auth_param=7i5hb:1aeecuu:2bde997f23ecfc306efc937aca27ec7b&uprof=25 Gio

I don’t know. I would say it is mostly irrelevant. Though, to tell the truth, I don’t like the issuance of shares at this price… at least if I cannot benefit from it! ;) As a shareholder I like rights offerings very much, because they give us the possibility to choose whether we want to invest more or not. In other words they give existing shareholders the right to subscribe and to buy the new shares before anyone else. Imo a pity! Dear Prem, board members have often accused me that I always agree with you… Well, this time I show them it is not always so! My trust and respect in your judgment remains intact and 50% of my firm’s investments stays in your company. Best regards, Gio

Why not a rights offering like Malone has often done to finance his deals? I would have been delighted to buy more FFH below BVPS! :) Gio

Think of it this way: They have increased BVPS at a CAGR of 11% from 2004 to 2013, and last year they have increased it by 10.2%… despite the fact a) Einhorn is underperforming the market, b) combined ratios are not very good, and c) their business dropped almost 40% last year! And I would add despite the fact d) they are still very little levered. Now think what they could achieve with just little improvements in a), b), c) and/or d)! ;) Cheers, Gio

What I meant to say is this: FFH is giving £1,120 million in cash and among the things it will receive there are £505 million in cash… Probably I don’t understand what I am missing! ;) Gio

Ahahah!! ;) No, well… When Watsa says 25% of FFH portfolio is in cash, he is thinking about float as well, either be it permanent capital or not! Right? If you use part of that cash to buy other float held in cash, where is the difference? Gio

If you think that Brit investments in June 2014 were worth £2,564.2 million and FFH is using (£1,220 / 305) x 280 = £1,120 million of its cash, and you assume HWIC could earn their historical 9% return on investments, FFH in addition to Brit’s dividend could achieve another £2,564.2 x 0.09 = £231 / £1,120 = 20.6% return on the cash employed. Furthermore, £505 million in Brit’s portfolio are cash and equivalent. Therefore, the true cash used by FFH is: £1,120 - £505 = £615 million. Imo the market hasn't appreciated this deal highly enough! ;) Gio

Let’s suppose Brit pays out 100% of 2014 earnings. In June Brit declared an interim dividend of £0.0625 and now a final dividend of £0.25. This means that 2014 full year earnings have been: £0.0625 + £0.25 = £0.3125, which would be consistent with the statement that FFH is paying less than 10x 2014 earnings. Now, given the fact Brit has earned £0.142 during the first half of 2014, the second half earnings should be: £0.3125 - £0.142 = £0.1705. Which added to net tangible assets at the end of June 2014 give us a net tangible assets at the end of 2014: £1.794 + £0.1705 = £1.9645. Then, if we subtract the £0.25 final dividend, we get: £1.9645 - £0.25 = £1.7145. And the multiple paid by FFH should be: £2.80 / £1.7145 = 1.63. Is this almost right? Now let’s look at it this way: if Brit keeps declaring dividends in 2015 which are in line with those declared for 2014, FFH will receive a £0.3125 / £2.80 = 11.16% dividend yield on the cash it has used to purchase Brit + Brit’s float to invest. Am I looking at this in the right way? If so, not bad! What do you think? Gio

Ok! But it seems to me that FFH gets the dividend from money earned by Brit during 2014, a year in which FFH’s capital was invested somewhere else, not in Brit. In other words what I mean is the following: for £3.05 per share FFH is buying not only Brit’s future earnings from 2015 onward, but also Brit’s 2014 final dividend paid out from Brit's 2014 earnings. Am I wrong? Gio

So FFH agreed to pay £3.05 per share in cash, consisting of £2.80 in cash and the expected 2014 final dividend, payable by Brit, of £0.25 in cash to Brit shareholders. … I am not sure I understand this clearly: so, FFH has paid £3.05 or £2.80 per share?... After all, FFH was not a Brit shareholder in 2014, right?... Therefore, no 2014 final dividend should be paid by Brit to FFH… What am I missing here? Gio