JPerez

I read the proxy, and you were right the deemed dividend issue makes it impossible to tender shares for an individual investor holding the shares in a taxable account. What the tender will do for the share price is partially or totally eliminate the overhang that active funds selling has had over the shares the last few months. The price of the tender is not attractive at 50% of NAV at the top of the range but some funds will use the opportunity to get out

I don't know anything about the taxation of the SIB, but I am not that optimistic about the price the auction will settle at. There has been big blocks of shares offered to the market the last few months which has put pressure on the price. My guess all along is that actively managed value funds are in liquidation mode due to the flow to passive and the underperformance of value the last few years. This to me is what is affecting the price dynamics in the stock. Funds that took their time building a position years ago being careful not to push the price up are now dumping just to liquidate and it doesn't look to me that they are very price sensitive. How long will this dominate the price of the stock is anybody's guess but I would think that ELF management has a good sense for it since more than likely they have been offering them those blocks through brokers the last few months.

Results are out NAV up to 1508 cad per share. I was out by 2% in my model. The model is based on the disclosures of the annual report so it gets more inaccurate as the year progresses. Not bad results, they have grown book value year to date by 1.5% and that doesn't take into account the extraordinary dividend paid in march.

Results for empire life are out. They earned 51 million for the quarter (16.9 % Roe anualized). 67 million earned YTD. ( 5.8% ROE anualized). Quarterly dividend to elf comes to 22 million. Pretty good results for the quarter. Elf results should be out in a couple of weeks.

After today's close I updated my model and my estimation of NAV as of the end of Q3 is 1540 CAD per share. (It is selling at nearly a 60% of a discount to NAV) As per my previous posts I suspect somebody with a big block is still selling, today they sold over 1000 shares again through the day from the National Bank of Canada brokerage. There has been no insider purchases for the last 4 months which is somewhat unusual given there is a motivated seller and that the insiders should have cash after the special dividend back in April. I hope something happens to close the widening gap between NAV and the share price, but realistically this crazy discount could go on for years.

I'd confess I know little about the Canadian taxation system. My understanding is that you pay the statutory tax rate to only 50% of the capital gains while the other 50% is exempt. Is that correct? In the case of ELF, deferred tax liabilities were 268 million CAD at year end 2019 in my understanding if the inclusion rate goes to 75% that would mean that an additional 134 million would arise immediately if you don't realize the gain before the inclusion rate changes. There could be an additional impact in the investments in partnerships and EVT as they are not consolidated. Those investments as far as I can see are valued at around 800 million CAD so even if they would have been purchased at zero cost the maximum amount of increased liability would be 200 million additional gain at 26% rate so around 50 million CAD. Those two items would amount to around 50 CAD per share or 3% of NAV. It is something but hardly earth shattering. Am I thinking about this correctly?

I read the Seeking alpha article, my only issue with it is that capitalizing the headquarter expenses at 20x seems quite aggressive to me. To reach a fair value for the shares I would prefer to use NAV and apply a 20-30% discount which would get us to the 1000-1200 range which is the same conclusion that the author reaches but through a more complicated calculation. Regarding the chances of a SIB, I was looking a bit at the regulations in Canada and it seems to me that the bizaro86 is right it seems that companies can do a SIB at a price of their choosing only if they get an opinion that the liquidity of the stock wouldn't be affected. In this case with the very limited float that would be hard to argue. If the liquidity would be affected then they have to do the SIB at a fair value which would have to be assessed by a third party. Does anybody know if this interpretation is correct? If that is the case is hard to see why they would do a SIB at NAV, if they go this route if would make more sense to do a take private bid. On the other hand there are encouraging signs like the 200 million raised and the dividend from Empire life to the holdco this quarter which was another 44 million. What I find a bit strange is that none of the other family vehicles or Duncan Jackman has bought any shares since the beginning of June at this prices. As I said in a previous post there is somebody selling a big block since at least the beginning of August through the National Bank of Canada brokerage, just yesterday they were sitting all day at 675 with an iceberg order showing a 100 lot but selling over 2000 shares over the day. Other times this has happened in the past the family holdcos had come and taken advantage buying these blocks. Are there any restriction in Canada about insiders buying shares before a SIB or a take over offer?

I also think that Mr. Corbat has done a decent job at the helm of Citigroup. He inherited a mess after the financial crisis and what I consider was terrible mismanagement on the Vikram Pandit years. Mr. Corbat simplified the bank and made it much safer. He recovered well from the fail CCAR test in 2014, and was able to repurchase over 30% of the outstanding shares in the last 4 years. Banks have such a tough job these days. You have analysts and investors giving Corbat a hard time every quarter for not reducing expenses enough and now that it transpires that they have an issue migrating systems to a more modern platform (for which they are investing 1B this year alone), the same people complains that they didn't invest enough. Another example is this week when the CFO said that they expected to build some more reserves this quarter although at a significant lower rate than previous quarters, the analysts didnt like this because other banks have hinted that they will stop building reserves. At the end of the day with the new accounting these reserves are only a rough estimation based in models for all the future expected losses of the loans in the books. Actual charge offs have been very muted in this recession so far for all the banks. So if you are conservative and build reserves you get punished now and if you are not reserving enough you get complimented now but you would get punished on the other end when it becomes clear you didn't do enough.

It is quite a complex structure. I had seen the amalgamation back in 2011 of Overdown, Drawde, Cimonoce and Cirederf and Dondale into Dondale. The amalgamated Dondale definitely owns a lot more than the 692,000 shares of EVT because at the time in 2002 Dominion owned 1,274,402 shares of EVT directly and they valued them at around 48 million CAD and the value of the stakes in what has became Dondale was 183 million CAD so the EVT they own now could only be around 26 million CAD at the time so only about 15% of the assets. Also I wonder how many layers of ownership are there since the Jackmans are not directly the owners of Dominion either. Dominion was about 50% owned by another holdco called Debentures and Securities corporation of Canada. I wonder if ELF is a shareholder of this other holdco higher in the corporate structure as well.

After safetyinnumber's post last week I was wondering what are the crossholdings between ELF and the Jackman family holdcos. I knew about the family owning UNC, ELF, EVT and Algoma through holdcos and of course the ownership of ELF shares by EVT and EVT in ELF but I wasn't aware about ELF having any participation in the company holdcos so I was looking into it the last few days. So this is what I found: The main shareholders in ELF are: EVT owns 386206 shares of ELF (10.11%) directly but also proportionally around 71200 shares (1.86%) through their investment in a partnership called Ecando investments. The main Jackman holdco Dominion & anglo Investment owns 1459193 shares of ELF (38.21%) Canadian and Foreign securities owns 535614 (14.03%). The Jackmans also own another 476294 shares (12.47 %) through other holdcos. In total the Jackmans control around 77% of ELF directly or through this vehicles. The main holders in EVT are: ELF 1348163 shares (24.01%) Dominion & Anglo investments 1502898 (26.87 %) Canadian & Foreign securities co 717713 (12.83%) Dondale Investments 692000 (12.37%) Other Jackman vehicles 409255 (7.32 %) In total they control 83.5% of EVT shares. Over the years the speculation have been that if ELF buys EVT they will acquire their own shares cheap but I think this outcome is quite unlikely since ELF (controled by the Jackmans) would have to buy EVT from the Jackmans. It doesn't make sense that they would sell the ELF shares in EVT to ELF at a cheap price and at the same time they would have to deal with a capital gain and pay taxes. The only way this could happen is through a merger paid with ELF shares but with ELF shares being so cheap would that even make sense. Of all the holdcos the only one I could find filings on is Dominion and Anglo Investments, they used to have public filings until 2002. I checked that last year accounts and proxy and what i found is quite interesting. ELF owned around 10% of Dominion directly so you could say that ELF owns 3.8% of itself proportionally through the direct shareholding of Dominion in ELF. Dominion is a shareholder of Canadian & Foreign securities, Ecando and Dondale investments which are shareholders of ELF and EVT so ELF owns indirectly shares of ELF and EVT this way. (It is hard to know how much would it be since I can't find any information on the exact percentages on this companies that are owned by Dominion but and educated guess is that it is quite a significant percentage based on the value that they put on the assets of these corporations owned by Dominion in the 2002 accounts) Dominion is also a shareholder in United-Connected holdings which in turn owns 22.7% of UNC Dominion is a shareholder of Amogla holdings which owns shares of Algoma I couldn't find any information on ELF owning shares directly in Canadian & Foreign securities, Dondale, United- Connected, Amogla, Ecando or any of the other holding companies but it is quite possible that they own some shares on those companies since they have north of 600 million CAD in level 3 Canadian shares which are invested in partnerships. Based on all of this, in my opinion the most likely scenario is that they keep buying shares at all their companies opportunistically over a number of years. I find interesting in safetyinnumber's post also the comments of Duncan Jackman about speculators vs investors and how in his interpretation of Duncan's words they don't want to increase the price of the shares to benefit speculators. That is all fine and well and of course a discount of to NAV of 20-30 % has been quite common in listed CEFs and listed Holdcos over the years. But my question would be when do you go from speculator to investor? Because if you are invested in this company over the last 5 years I don't think anybody could reasonable argue that you are an speculator but all we have seen is the discount to NAV get wider and wider. I mean if you are a very long term investor in this company (10-20 years) you might want, from time to time, sell some shares to buy a car or whatever it is and investors that chose a company to put their savings in trust that they can sell their shares at a resonable price that is grounded in fundamentals, but this is clearly not the case here with a 60% discount to NAV plus the double discount of ELF owning indirectly its own undervalued shares. Berkshire Hathaway would never let something this extreme happen to its own shares, Buffett has talked extensively about the shareholders as partners that should have all the relevant information about the company and the fact that Berkshire's shares are trading at a reasonable level is important. Here there is little to no disclosure of the cross shareholdings of ELF and the Jackmans holdcos and the minority shareholders are not thought of as partners by the Jackmans to say the least. To finish I just wonder if there is any way to get the Annual accounts or proxy statments of Private companies in Canada and also if anybody knows what is the threshold of ownership at which a majority holder would have to make an offer to delist the company.

It is actually just 6B in total adding the stakes in the 5 companies. It is not a significant investment by any extend of the imagination. I haven't look at these companies yet, but there is no need to panic ;)

I just don't know why the needed the money they raised. Most of their investments are in highly liquid stocks. The only thing they needed to do to raise money for the SIB was to sell some securities, surely they can find some in their portfolio that don't have a big capital gain on. I suppose they raised the money because it is a good time to do it at this rates. Couldn't they retire some of the preferreds with that money also?

By my calculation book value is up to around 1550 CAD at this market levels, yet the price is still at 675. In fact it is the same price it was at in mid April, for reference the s&p 500 was at 2800 then or nearly 20% lower. Looking at the tape it seems to me that since the beginning of August somebody is getting rid of a block of shares through the NBC brokerage. If there are a few hundred shares at the bid they hit it and also they put concealed sell orders with a few hundred shares at the ask. This has increased the volume and put pressure on the price as they look for demand for the block. Insiders have not bought shares in the last couple of months despite this. For what is worth I picked up some shares at 675 today reversing 1/3 of the trade i made in May where I sold all my ELF and bought Berkshire just after Buffett's remarks at the AGM.

They are counting the 80 million warrants as shares for ownership purposes. If you take that away it looks like they owned 0 shares other than the 11 million they got as a dividend earlier. So nowhere near the 10%. They might owned oxy shares in other entities that are not listed in the prospectus.

I thought about shorting it but in this market I am afraid to short even when, like on this case, on the face of it is overwhelmingly rational thing to do.