JEF - Jefferies Group

[orion]

Just wondering: The negotiated price is $41.00 and the last closing price was >$48.00. Is such a large discount usual in such transactions?

[ShahKhezri]

No.  Depending on what LUK is after and what they think its worth...on the surface this looks like a pretty good deal for MLI.

[matjone]

  LUK is the 2nd largest position

 

Parsad, if you don't mind telling me, what is it that makes you choose LUK over Fairfax at this point?  Just the size difference?  Less leverage?  Don't like insurance?  I would imagine you have more confidence in Prem Watsa than an up and comer like Justin Wheeler, and the price/book ratios aren't that much different for the two companies.

[MVP444300]

http://seekingalpha.com/article/885181-a-rare-undervalued-opportunity-leucadia-is-the-answer

[Parsad]

  LUK is the 2nd largest position

 

Parsad, if you don't mind telling me, what is it that makes you choose LUK over Fairfax at this point?  Just the size difference?  Less leverage?  Don't like insurance?  I would imagine you have more confidence in Prem Watsa than an up and comer like Justin Wheeler, and the price/book ratios aren't that much different for the two companies.

 

I like Leucadia's bet that the world is going to recover and inflation is going to be more of a problem than deflation.  I also thought that the underlying assets were quite undervalued, whereas the Fairfax's hedges were going to keep things neutral.  I like Fairfax right now, but I'll like it even better if it were a little cheaper.  Cheers!

[Parsad]

I never understood the rationale behind MLI investment.

I think LUK has a big purchase lined up and need cash.With the cash coming from MLI , LUK is sitting at more than $1B in cash.

 

I think something is definitely up.

 

Cash (380) + MLI (427) + FMG (715) = 1,522

 

Have any details been made public as to when they receive the FMG proceedings?

 

I definitely think they have found or negotiated another target company.  The cash from Fortescue is to be received by the middle of December I believe, once Fortescue's new credit line is fully in place.  Cheers!

[giofranchi]

  LUK is the 2nd largest position

 

Parsad, if you don't mind telling me, what is it that makes you choose LUK over Fairfax at this point?  Just the size difference?  Less leverage?  Don't like insurance?  I would imagine you have more confidence in Prem Watsa than an up and comer like Justin Wheeler, and the price/book ratios aren't that much different for the two companies.

 

I like Leucadia's bet that the world is going to recover and inflation is going to be more of a problem than deflation.  I also thought that the underlying assets were quite undervalued, whereas the Fairfax's hedges were going to keep things neutral.  I like Fairfax right now, but I'll like it even better if it were a little cheaper.  Cheers!

 

Parsad,

could you please elaborate on your thesis that inflation will be more of a problem than deflation?

I know that we will have inflation, and I know that the world is going to recover… but when? I mean, this is what I see right now:

1) Levels of debt which are still at record high all over the developed world,

2) Asset prices which in general are high, and not many bargains can be found.

Given 1) and 2), why do you rule out a deflationary scare, before inflation and recovery finally kick in for real? I would appreciate your thoughts on this topic very much!

Thank you,

 

giofranchi

 

[frog03]

What I currently don't like with Leucadia is that 1/4 of equity is the loss carry forward.  Contrast this with BRK's deferred tax.  With this alone, you go a long way justifying LUK trading at a discount to BV and BRK at a premium.

[A_Hamilton]

What I currently don't like with Leucadia is that 1/4 of equity is the loss carry forward.  Contrast this with BRK's deferred tax.  With this alone, you go a long way justifying LUK trading at a discount to BV and BRK at a premium.

 

Yeah, they seem to be doing everything they can to monetize it as rapidly as possible!

 

Here is a question on the DTA, why does Leucadia have any debt outstanding when they get no tax shield for having debt? RFP has a DTA that is worth more than its market cap and they are doing everything they can to pay down debt ASAP.

 

Cheers!

[link01]

What I currently don't like with Leucadia is that 1/4 of equity is the loss carry forward.  Contrast this with BRK's deferred tax.  With this alone, you go a long way justifying LUK trading at a discount to BV and BRK at a premium.

 

Yeah, they seem to be doing everything they can to monetize it as rapidly as possible!

 

Here is a question on the DTA, why does Leucadia have any debt outstanding when they get no tax shield for having debt? RFP has a DTA that is worth more than its market cap and they are doing everything they can to pay down debt ASAP.

 

Cheers!

 

What I currently don't like with Leucadia is that 1/4 of equity is the loss carry forward.  Contrast this with BRK's deferred tax.  With this alone, you go a long way justifying LUK trading at a discount to BV and BRK at a premium.

 

Yeah, they seem to be doing everything they can to monetize it as rapidly as possible!

 

Here is a question on the DTA, why does Leucadia have any debt outstanding when they get no tax shield for having debt? RFP has a DTA that is worth more than its market cap and they are doing everything they can to pay down debt ASAP.

 

Cheers!

 

luk funded some of its various investments during less financially repressed times when assets were not only cheap but it was concievable that a return to the formerly inevitable 'normal' business cycle upswing would stack the odds for profit strongly in their favor. in the process they would be able to maximize the value of their NOL's....time is money, after all, even with the monetization of NOL's. but i sense they are seeing, a la pimco's 'new normal' theme, a very uncertain outlook for business worldwide, not to mention relatively elevated assets prices from the Fed's QEternity money printing scheme, & growing political tensions, including class strife which is bound to swing the pendulum in a major way back to the favor of labor (ie, the middle class) at the expense of business which has been the main benficiary of 30 years of unchecked capitalism run amuck, imo.

 

it will be interesting to see whether luk pays down more of its higher cost debt considering the dearth of values- especially if you believe we've seen a secular peak in profits & margins- & the still abundant competition for them with so much liquidity sloshing around, or whether they sit tight & wait even more patiently for a major drop in asset prices. that's something that has frustrated them for a long time now.

 

 

[Parsad]

Jefferies 10-Q is out.  Cheers!

 

http://www.sec.gov/Archives/edgar/data/1084580/000119312512418709/d386929d10q.htm

[jeffmori7]

Could Leucadia be raising cash to buy Jefferies? Would it be interesting for them and would it be feasible?

[JRH]

I think something is definitely up.

 

Cash (380) + MLI (427) + FMG (715) = 1,522

 

Have any details been made public as to when they receive the FMG proceedings?

 

I definitely think they have found or negotiated another target company.  The cash from Fortescue is to be received by the middle of December I believe, once Fortescue's new credit line is fully in place.  Cheers!

 

Are there regulatory or other factors that would constrain or even prevent them from acquiring Jefferies?  Seems to me like they are within strking distance if they wanted to make a cash + stock offer.

 

I have no special insight into what Leucadia would or wouldn't be after, but they purchased a significant amount at higher prices, and why purchase a single share if you wouldn't purchase the whole thing?

[Parsad]

I think something is definitely up.

 

Cash (380) + MLI (427) + FMG (715) = 1,522

 

Have any details been made public as to when they receive the FMG proceedings?

 

I definitely think they have found or negotiated another target company.  The cash from Fortescue is to be received by the middle of December I believe, once Fortescue's new credit line is fully in place.  Cheers!

 

Are there regulatory or other factors that would constrain or even prevent them from acquiring Jefferies?  Seems to me like they are within strking distance if they wanted to make a cash + stock offer.

 

I have no special insight into what Leucadia would or wouldn't be after, but they purchased a significant amount at higher prices, and why purchase a single share if you wouldn't purchase the whole thing?

 

When Leucadia originally made the equity investment in Jefferies, they were restricted from acquiring more than 30% of the company.  I would expect that with board approval, and their cordial relationship, that limit could be lifted if it came to that.  I don't believe there are any other regulations that would prevent Leucadia from acquiring Jefferies, but it would probably still need government approval if a deal came to fruition.  Cheers!

[BargainValueHunter]

Maybe a LUK takeover would be cheaper now:

 

http://www.moodys.com/research/Moodys-downgrades-Jefferies-to-Baa3--PR_257696

 

The downgrade of Jefferies' senior unsecured rating to Baa3 reflects Moody's concerns regarding the challenges Jefferies faces in preserving its risk management culture and managing risk concentrations, and better incorporates risks presented by institutional capital markets activities and the challenges of operating the investment banking model. These business model challenges are some of the factors that led Moody's to downgrade the unsupported baseline credit assessments of many global investment banks into the Baa range in June 2012.

 

Moody's believes that concentration risks are inherent in the capital markets business and can arise either through important banking relationships or through competitive pressures. Preserving a firm's risk management culture through periods of opportunistic growth is particularly challenging, the rating agency noted.

 

Since the onset of the financial crisis in 2007, Jefferies has grown significantly and opportunistically, gaining market share in investment banking and diversifying its fixed income platform. As a result, Jefferies relative competitive position has improved. However, this growth also introduces risks as the firm integrates the people and operations that it has acquired, and establishes long-term discipline around risk taking. Being a mid-sized firm has enabled Jefferies' most senior management to remain highly engaged in this process, and this is positive. However, in Moody's view it also points to key-people risk. As the firm continues on its growth path, the ability of its senior leaders to remain as highly involved will diminish, and this longer-term risk is incorporated into the firm's ratings.

[JRH]

Maybe a LUK takeover would be cheaper now:

 

http://www.moodys.com/research/Moodys-downgrades-Jefferies-to-Baa3--PR_257696

 

Also possible Leucadia could provide cash flow diversification/stability to lower the interest rate Jefferies pays for its long-term debt.

[biaggio]

http://biz.yahoo.com/e/121019/luk8-k.html

 

On October 17, 2012, the Company sold its oil and gas drilling subsidiary, Keen Energy Services, LLC, for cash consideration of $100,000,000, and a $40,000,000 four-year interest bearing promissory note issued by the purchaser. The Company will also retain Keen's net working capital, principally cash, receivables and payables. Keen had been classified as a discontinued operation. The Company recorded a pre-tax loss on sale of discontinued operations of approximately $19,300,000.

[mankap]

They already got $715m cash from FMG, sooner than I was expecting.They got another 100m from keen energy.What are  they upto?.They have collected so much cash in last one month.Are they buying Rescap.I am so tempted to but some calls.

 

 

On October 18, 2012, Leucadia National Corporation (the "Company") received the payment of $715,000,000 as a result of the consummation of the transactions contemplated by the previously disclosed Deed of Release, Termination and Settlement dated 19 September 2012 between Fortescue Metals Group Ltd (Fortescue) and Chichester Metals Pty Ltd (Chichester), and John Andrew Henry Forrest (Forrest) and Leucadia National Corporation (Leucadia) and Baldwin Enterprises Inc. (Baldwin). As a result, the Company expects to record a pre-tax gain of approximately $526,000,000 in the fourth quarter of 2012.

 

On October 17, 2012, the Company sold its oil and gas drilling subsidiary, Keen Energy Services, LLC, for cash consideration of $100,000,000, and a $40,000,000 four-year interest bearing promissory note issued by the purchaser. The Company will also retain Keen's net working capital, principally cash, receivables and payables. Keen had been classified as a discontinued operation. The Company recorded a pre-tax loss on sale of discontinued operations of approximately $19,300,000.

 

 

[JRH]

They already got $715m cash from FMG, sooner than I was expecting.They got another 100m from keen energy.What are  they upto?.They have collected so much cash in last one month.Are they buying Rescap.I am so tempted to but some calls.

 

The timing and clumped nature of these liquidations support the idea.

 

"The sales, which are subject to higher bids, could generate more than $4 billion for ResCap's estate, a price that ResCap said was high enough to justify the millions in bonuses. Berkshire's bid for the legacy loans is $1.7 billion, while Nationstar's bid for the existing mortgage platform is $2.5 billion. The "legacy" loans being bid on by Warren Buffett's Berkshire are mortgages being held for sale."

 

http://www.nasdaq.com/article/judge-approves-rescap-bonuses-auctions-set-for-next-week-20121017-01001#.UIFoc29JMuc

 

They're within sneezing distance of the Berkshire bid by themselves.  Also possible they are partnering with Berkshire in some form or another.  Who knows.

[Kiltacular]

Doing Rescap (likely with Berkshire) makes more sense to me than a buyout of JEF if for only the reason that if they were going to try to buy out JEF there wouldn't be this sudden need to do it.

 

They are selling / cutting deals on their biggest positions (aside from JEF) and some smaller ones (Keen) very rapidly.  They obviously didn't get their best price for the MLI share sale.

 

My guess is that they think (or know?) they have a very, very good shot at getting something done and that something is happening soon. 

 

Either that, or they think the world is coming to an end.

[valuecfa]

Doing Rescap (likely with Berkshire) makes more sense to me than a buyout of JEF if for only the reason that if they were going to try to buy out JEF there wouldn't be this sudden need to do it.

 

They are selling / cutting deals on their biggest positions (aside from JEF) and some smaller ones (Keen) very rapidly.  They obviously didn't get their best price for the MLI share sale.

 

My guess is that they think (or know?) they have a very, very good shot at getting something done and that something is happening soon. 

 

Either that, or they think the world is coming to an end.

 

Or they are just finding few attractive deals relative to the rates their credit rating provides and they are comfortable at the time being earning mediocre returns implied by their current borrowing rates and just redeeming debt

[Kiltacular]

Or they are just finding few attractive deals relative to the rates their credit rating provides and they are comfortable at the time being earning mediocre returns implied by their current borrowing rates and just redeeming debt

 

So you don't find the rapidity with which they are doing these sales surprising?  Buyers from them must be getting the idea that they are in a good negotiating position, no? 

[tombgrt]

Doing Rescap (likely with Berkshire) makes more sense to me than a buyout of JEF if for only the reason that if they were going to try to buy out JEF there wouldn't be this sudden need to do it.

 

They are selling / cutting deals on their biggest positions (aside from JEF) and some smaller ones (Keen) very rapidly.  They obviously didn't get their best price for the MLI share sale.

 

My guess is that they think (or know?) they have a very, very good shot at getting something done and that something is happening soon. 

 

Either that, or they think the world is coming to an end.

 

Or they are just finding few attractive deals relative to the rates their credit rating provides and they are comfortable at the time being earning mediocre returns implied by their current borrowing rates and just redeeming debt

 

No need to sell the MLI position at such a discount then no?

[valuecfa]

Doing Rescap (likely with Berkshire) makes more sense to me than a buyout of JEF if for only the reason that if they were going to try to buy out JEF there wouldn't be this sudden need to do it.

 

They are selling / cutting deals on their biggest positions (aside from JEF) and some smaller ones (Keen) very rapidly.  They obviously didn't get their best price for the MLI share sale.

 

My guess is that they think (or know?) they have a very, very good shot at getting something done and that something is happening soon. 

 

 

Either that, or they think the world is coming to an end.

 

Or they are just finding few attractive deals relative to the rates their credit rating provides and they are comfortable at the time being earning mediocre returns implied by their current borrowing rates and just redeeming debt

 

No need to sell the MLI position at such a discount then no?

 

That is a good point. I suspect they are raising cash for an specific opportunity. But at times where there are limited attractive deals it makes sense for them to redeem debt given their circumstance of limited op cash flows and poorer credit rating.

[Kiltacular]

But at times where there are limited attractive deals it makes sense for them to redeem debt given their circumstance of limited op cash flows and poorer credit rating.

 

Valuecfa,

 

I agree with you and given what they said at their annual meeting -- regarding it's "scary" out there, etc. -- at first that is all I thought they were doing when they did the Fortescue deal...just closing that one down opportunistically and possibly worried that Chinese demand for ore was headed in the wrong direction longer term.

 

My comment about the world coming to an end was facetious. 

 

So, you could be right that they are just pulling in their horns.

 

I may be guilty of just "hoping" here.  But, it does seem like they hope they've got something big brewing.

 

They always fund to watch, in any case.