WhoIsWarren Posted February 28, 2015 Share Posted February 28, 2015 The market price of our Class A common stock may decline due to the large number of shares of Class A common stock eligible for exchange and future sale. The Holdings Units can be converted on a one-for-one basis to Class A shares. In fact, an executive already had a margin loan called that required conversion from holdings units to Class A shares. The outstanding share count should be around 81m. The current trading price of FXCM is a complete joke. Equity is only worth about $1 tops after the LUK deal, even if you use the 52-week high of FXCM enterprise value--which isn't likely in my opinion. The market price of shares of our Class A common stock could decline as a result of sales of a large number of shares of Class A common stock in the market or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell shares of Class A common stock in the future at a time and at a price that we deem appropriate. In addition, we and our pre-IPO owners entered into an exchange agreement under which they (or certain permitted transferees thereof) have the right, from and after the first anniversary of the date of the closing of the IPO (subject to the terms of the exchange agreement), to exchange their Holdings Units for shares of our Class A common stock on a one-for-one basis, subject to customary conversion rate adjustments. The market price of shares of our Class A common stock could decline as a result of the exchange or the perception that an exchange could occur. These exchanges, or the possibility that these exchanges may occur, also might make it more difficult for holders of our Class A common stock to sell such stock in the future at a time and at a price that they deem appropriate. Thanks for clarifying Roark. Sorry I was rushing out the door the other day and didn't fully check my facts. Clearly you / Benhacker are correct. Company produces pro-forma numbers that shows this. Link to comment Share on other sites More sharing options...
scorpioncapital Posted March 2, 2015 Share Posted March 2, 2015 Leucadia letter is out: http://leucadia.com/c-p_letters/leucadia_2014_shareholders_letter.pdf I actually quite like this year's letter. It seems far more lucid, certain, and concise than the past letter. Link to comment Share on other sites More sharing options...
usdtor05 Posted March 3, 2015 Share Posted March 3, 2015 Leucadia letter is out: http://leucadia.com/c-p_letters/leucadia_2014_shareholders_letter.pdf I actually quite like this year's letter. It seems far more lucid, certain, and concise than the past letter. Agreed thought it was excellent. Link to comment Share on other sites More sharing options...
cheerlee Posted March 4, 2015 Share Posted March 4, 2015 Bruce Berkowitz: "Well, Jefferies did weather the financial crisis without government assistance. And their top executives do have their family net worth in the company, which we like. Like Leucadia, the new team continues to make opportunistic investments, such as with Harbinger and FXCM. We think there are going to be other opportunities. Most importantly, the company is priced below its book value. And I continue to believe, [as with] Bank of America, [as with] AIG, [that] it is not unreasonable to expect a normal 10% return. And we’re going to wait and we’re going to see them achieve those returns. The only negative I have on Leucadia, of course, is that their valuable assets walk out the door every day in the elevator. So it does have a bit of the expenses of a sports team, which always is of concern. But Jefferies does it better than most. Leucadia, like Fairholme, has had a lumpy but above average return over long periods of time, and that’s where we are." Link to comment Share on other sites More sharing options...
scorpioncapital Posted March 4, 2015 Share Posted March 4, 2015 After a decade of underperforming the S&P500, I hope the "above average lumps" start coming very soon! There is only one illusion that I have a problem with at Leucadia. They keep talking about their great businesses. But from what I've read from Buffett, there isn't a single business LUK owns that is great. Everything is an average business and some are average, distressed businesses. So to expect great returns, one must almost steal them in bankruptcy and even then, the gain is one time. It seems Handler is saying we will focus on cigar butts while Buffett said long ago that Munger made him see the light that cigar butts don't work as well when you get bigger, aren't scaleable, and ultimately offer only marginally better than average returns compared to the 10 baggers possible by owning really powerful businesses purchased at fair prices. Link to comment Share on other sites More sharing options...
petec Posted March 4, 2015 Share Posted March 4, 2015 Halfway through and I'm really impressed with this. been about 4 years since I followed LUK properly, but if this is anything to go by it has an excellent future. Link to comment Share on other sites More sharing options...
mcliu Posted March 4, 2015 Share Posted March 4, 2015 Berkadia/Garcadia are good businesses. ::) Link to comment Share on other sites More sharing options...
jay21 Posted March 4, 2015 Share Posted March 4, 2015 Berkadia/Garcadia are good businesses. ::) They are so small though. The biggest value drivers are JEF, Beef, and cash. 2/3 are challenging and they are knocking the cover off the ball with the last third (i.e. I like their deals so far). Link to comment Share on other sites More sharing options...
thepupil Posted March 4, 2015 Share Posted March 4, 2015 Berkadia isn't small. It's probably worth $500MM to $1B, which is just as big as National Beef. If LUK gave me an option to steal one of those two, I'd probably take Berkadia (even though it is over-earning and Beef is underearning, I'd take the mortgage originator/servicer over the slaughterhouse anyday). Link to comment Share on other sites More sharing options...
petec Posted March 4, 2015 Share Posted March 4, 2015 Berkadia/Garcadia are good businesses. ::) They are so small though. The biggest value drivers are JEF, Beef, and cash. 2/3 are challenging and they are knocking the cover off the ball with the last third (i.e. I like their deals so far). JEF doesn't strike me as a bad business given what they have done with it over the years. Or rather it may be a mediocre business run by exceptional people and, notwithstanding the famous Buffett quote, this entire board is built around two companies that meet that description! Beef, I tend to agree, although I am intrigued that they haven't sold it given how much other junk they have sold. Maybe they see something. I'm intrigued by LAM, the 'cadias, etc. Good cash generative businesses unlike some of what Leucadia used to do. Link to comment Share on other sites More sharing options...
thepupil Posted March 4, 2015 Share Posted March 4, 2015 Btw, does anyone else think the 6 5/8% of 2043 @ $99 are cheap? 390 or so over the 30 yr seems like decent compensation for the credit risks of this business. Compare the financials heavy i-shares preferred stock index at 5.6% and vanguard long term investment grade @ 3.76% and the vanguard long term corporate bond @ 4.2%. I know some of you may scoff at this, but for the right buyer (like a retiree) this seems like decent relative value. Link to comment Share on other sites More sharing options...
petec Posted March 5, 2015 Share Posted March 5, 2015 Btw, does anyone else think the 6 5/8% of 2043 @ $99 are cheap? 390 or so over the 30 yr seems like decent compensation for the credit risks of this business. Compare the financials heavy i-shares preferred stock index at 5.6% and vanguard long term investment grade @ 3.76% and the vanguard long term corporate bond @ 4.2%. I know some of you may scoff at this, but for the right buyer (like a retiree) this seems like decent relative value. Relative value perhaps, but don't forget a) it's borderline junk and b) it's a 30 year bond. You'll get a major whipsawing if a) the high yield bubble bursts or b) inflation ever sticks its head above the parapet for a look around. They said themselves in the annual letter that long term rates are only going up and that's why they're locking in long term financing. You're essentially betting against them - why not buy the stock and bet alongside them? Link to comment Share on other sites More sharing options...
petec Posted March 5, 2015 Share Posted March 5, 2015 I've decided my favourite ever deal would be if these guys bought Lancashire ;) Link to comment Share on other sites More sharing options...
skanjete Posted March 5, 2015 Share Posted March 5, 2015 I'm a bit confused/worried about their LAM business. They claim to be value investors and in the letter, they describe why they would like to be considered as the value investors they are. But if they claim that a value strategy is the way to go to invest money, why don't they apply it in their FAM businesses? Somehow they seem to think that they can appy other strategies (quantitative f.e.) in their LAM (Leucadia Asset Management) businesses and be succesful at it in the long term. I know, they only invest seed money and the success of the LAM business in the short term is function of how well they can sell it to other investors, but in my view, over a long period of time, the success of the LAM business will boil down to the success of the investment strategies they choose. To me, this seems to be a paradox. In my opinion, if you are a true value investor, you won't try to sell other strategies to the investment public. You'll opt for the long term, prove that value works, and base the LAM business on a value approach. Link to comment Share on other sites More sharing options...
scorpioncapital Posted March 5, 2015 Share Posted March 5, 2015 Another paradox: Jefferies was bought in a stock swap that valued it at a significant premium to book value (~3 billion tangible equity to 4.7 billion purchase price) - 1.5x book. Now, LUK trades at or below tangible book value. Jef is 50% of LUK - a big part. Any stock purchases of LUK at today's price may be considered more valuable than when the merger was executed. Link to comment Share on other sites More sharing options...
petec Posted March 5, 2015 Share Posted March 5, 2015 I'm a bit confused/worried about their LAM business. They claim to be value investors and in the letter, they describe why they would like to be considered as the value investors they are. But if they claim that a value strategy is the way to go to invest money, why don't they apply it in their FAM businesses? Somehow they seem to think that they can appy other strategies (quantitative f.e.) in their LAM (Leucadia Asset Management) businesses and be succesful at it in the long term. I know, they only invest seed money and the success of the LAM business in the short term is function of how well they can sell it to other investors, but in my view, over a long period of time, the success of the LAM business will boil down to the success of the investment strategies they choose. To me, this seems to be a paradox. In my opinion, if you are a true value investor, you won't try to sell other strategies to the investment public. You'll opt for the long term, prove that value works, and base the LAM business on a value approach. It's only a paradox if they think value investing is the only way to invest. They have said they are value investors, which I take to mean that's what they are good at and will do. I don't read it to mean "anyone trying anything else is going to fail", so I don't see it as paradoxical that they would back other people selling other strategies. Unless, of course, they overpay when they back them ;) Also, they say they are value investors but they also say they are business builders. They're building a business here, meeting a market demand for funds that will do well (regardless of strategy) and also for funds that are uncorrelated. That seems fair to me. Link to comment Share on other sites More sharing options...
WhoIsWarren Posted March 5, 2015 Share Posted March 5, 2015 I'm a bit confused/worried about their LAM business. They claim to be value investors and in the letter, they describe why they would like to be considered as the value investors they are. But if they claim that a value strategy is the way to go to invest money, why don't they apply it in their FAM businesses? Somehow they seem to think that they can appy other strategies (quantitative f.e.) in their LAM (Leucadia Asset Management) businesses and be succesful at it in the long term. I know, they only invest seed money and the success of the LAM business in the short term is function of how well they can sell it to other investors, but in my view, over a long period of time, the success of the LAM business will boil down to the success of the investment strategies they choose. To me, this seems to be a paradox. In my opinion, if you are a true value investor, you won't try to sell other strategies to the investment public. You'll opt for the long term, prove that value works, and base the LAM business on a value approach. It's only a paradox if they think value investing is the only way to invest. They have said they are value investors, which I take to mean that's what they are good at and will do. I don't read it to mean "anyone trying anything else is going to fail", so I don't see it as paradoxical that they would back other people selling other strategies. Unless, of course, they overpay when they back them ;) Also, they say they are value investors but they also say they are business builders. They're building a business here, meeting a market demand for funds that will do well (regardless of strategy) and also for funds that are uncorrelated. That seems fair to me. No paradox for me here either. The barber might like a short-back-and-sides himself, doesn't mean he'll turn down a customer looking for a mohican..... ;) Seriously though, they are building an asset management business where they are getting a cut of the fees. In that regard, is a value fund the best investment strategy for running a business? I am of course a value investor, but most clients don't have the stomach for a long period of underperformance. Look at Rich Pzena....AuM fell from $29bn to $9bn in the financial crisis; while he's back at $28bn AuM now, markets are about 40% up from 2007, so on a like-for-like basis he's down one third. True, performance hasn't been great in the last 5 years, but great longer term numbers.....which is what "value investors" care about, right?? :-\ Leucadia is very carefully building LAM. It aims to protect its downside by keeping commitments to a minimum, but with a large skew to the upside -- the definition of value investing, right?? With Folger Hill (multi-strategy hedge fund platform) they have committed to invest $400m so long as Sol Kumin can match that. This business is tough to crack -- there are very few multi-manager strategy platforms out there as you need scale. Leucadia has wanted to get into this business for some time but didn't feel like they had the right person to run it. Kumin they feel has a good chance of success, but nevertheless understand this is an uncertain venture. If it works they'll have a large ownership stake (50-60%??) in a billions AuM premium asset manager. If it doesn't work, the downside is modest (a couple of tens of millions?). Topwater is a different, lower risk venture but still with lots of upside. The business has a been around c.10 years and has a very good track record. Topwater has also been the pioneer of this strategy, whereby the investment manager takes the first loss that would otherwise have been suffered by the investor, but takes a large slice of the upside. Last year (or was it the previous year?), the family office that had seeded the funds pulled out unexpectedly and Jefferies filled the void -- they "got the call". Again Leucadia owns a large part of the equity of the manager; if it all goes pear-shaped it'll lose the few million dollars it has spent on overheads. I like the economics of these investments for Leucadia investors. The "purity" of the underlying investment strategies is a long, long distant second. Link to comment Share on other sites More sharing options...
twacowfca Posted March 5, 2015 Share Posted March 5, 2015 I've decided my favourite ever deal would be if these guys bought Lancashire ;) That would be nice, but Lancashire pays very little tax on its earnings. That wouldn't help Leucadia use up its NOLs. Both companies have become situated as "go to" guys when something bad happens in their market niches, and a quick rescue is impossible from companies with entrenched bureaucracies that have to perform due dilligence. Lancashire has their own history of pulling the bacon out of the fire for key clients on short notice, just as Leucadia can rescue a desperate financial company from bankruptcy before the run on the bank starts. Link to comment Share on other sites More sharing options...
cheerlee Posted March 5, 2015 Share Posted March 5, 2015 Did anyone be annual meeting or investor day before? how is that? Link to comment Share on other sites More sharing options...
WhoIsWarren Posted March 6, 2015 Share Posted March 6, 2015 I've decided my favourite ever deal would be if these guys bought Lancashire ;) That would be nice, but Lancashire pays very little tax on its earnings. That wouldn't help Leucadia use up its NOLs. Both companies have become situated as "go to" guys when something bad happens in their market niches, and a quick rescue is impossible from companies with entrenched bureaucracies that have to perform due dilligence. Lancashire has their own history of pulling the bacon out of the fire for key clients on short notice, just as Leucadia can rescue a desperate financial company from bankruptcy before the run on the bank starts. Leucadia will have used up its NOLs in 3-5 years anyway, so I don't think the deciding factor for Leucadia management in doing a deal would be if the business pays taxes or not. For me I wouldn't like to see such a deal happening. I own both Lancashire and Leucadia and think I'll do best if they stay separate. In fact, I don't want to see anyone buy Lancashire, as I think its worth is far higher than what anyone out there would be willing to pay. It's a quality company and I think the market systematically undervalues such entities (and overvalues crappy ones). I think this explains why investors didn't necessarily overpay for the quality companies that made up the "Nifty Fifty", even though they looked very expensive on static valuation metrics (averaging c.42x P/E in 1972, more than twice the then P/E of the S&P500). Yes, their stock prices subsequently fell, but over the subsequent years their fundamentals shone through so that a basket of Nifty Fifty stocks bought at the peak would have performed as least as well as the market to date (I suspect performance has been much better). See this article, written in 1998 http://www.aaii.com/journal/article/valuing-growth-stocks-revisiting-the-nifty-fifty As for Leucadia, as opportunistic value investors they will seek to capitalise on market dislocations or misfortunes begetting individual situations. I severely hope Lancashire doesn't fall into either of these categories (!!) and that both companies can continue to grow their intrinsic values over time. Link to comment Share on other sites More sharing options...
james22 Posted March 7, 2015 Share Posted March 7, 2015 +1 See this article, written in 1998 http://www.aaii.com/journal/article/valuing-growth-stocks-revisiting-the-nifty-fifty Nice, thanks. Link to comment Share on other sites More sharing options...
KinAlberta Posted March 7, 2015 Share Posted March 7, 2015 +1 See this article, written in 1998 http://www.aaii.com/journal/article/valuing-growth-stocks-revisiting-the-nifty-fifty Nice, thanks. Yes, thanks for posting! In fact this article deserves a thread to itself under Strategies! "In 1975 there was no way of knowing which explanation was correct. But 25 years later we can determine whether the Nifty Fifty stocks were overvalued in 1972. Examination of their subsequent returns shows that the second explanation, roundly rejected by Wall Street for years, is much closer to the truth. A portfolio of Nifty Fifty stocks purchased at the peak would have nearly matched the S&P 500 over the next 26 years. ... " Link to comment Share on other sites More sharing options...
scorpioncapital Posted March 7, 2015 Share Posted March 7, 2015 To some degree, this is evidence of the efficient market theory. The market, while not always right, is *mostly* right about the quoted market value of any given company. Link to comment Share on other sites More sharing options...
racemize Posted March 7, 2015 Share Posted March 7, 2015 To some degree, this is evidence of the efficient market theory. The market, while not always right, is *mostly* right about the quoted market value of any given company. Except that it got it wrong when it went back down right? It couldn't be right before and after the crash? Link to comment Share on other sites More sharing options...
scorpioncapital Posted March 8, 2015 Share Posted March 8, 2015 Good point, EMT is always right and always changing :) Link to comment Share on other sites More sharing options...
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