L - Loews

[CorpRaider]

Just spitballing here, but I would probably rather look for exposure to credit risk than i-rate risk, eh?  So I would tend toward the latter (but I prefer PML since it is trading at a discount to NAV; disclosure I'm long PML).

[Spekulatius]

 

High mount right-offs have been an anchor, a revised focus on oil could limit further write offs.  It has been a rather torturous ride to date but I still think L can provide long term low double digit compounding from here and should be valued around 1.2-1.3x's book value or around $60+. Any less that that and Jim should be buying back hand over fist. 

 

Cheers

nwoodman

 

I don't think the Tilsch brothers are as good as they are often made to be. They made numerous mistakes, since i followed them

 

1). Bungled BWP expansion projects in 2008 with 700M$ in cost overruns. They needed to support BWP by buying subordinated units. This caused BWP distribution growth to stall. They later missed the switch to shale and the impact of the Marcellus, which made their main trunk line from the NE to Texas more or less obsolete. Compare this to good operators like Kinder, Energy Transfer, PAA, or MMP.

 

2) Doing nothing with billions of US$ in liquidity during the financial crisis. They even stopped buying back their stock in 2009, when it was really cheap. Asleep at the wheel? They are certainly not greedy when others are fearful.

 

3) Highmount disaster. This was their only strikeout in the last few years and a disaster.

 

4) CNA was underperforming for years and just recently picked up.

 

5) OK management at DO, but by far not best in class, like Fredericksen or ESV.

 

 

Sure the stock is somewhat cheap, but those guys are neither good capital allocators not good operators. I think L basically lost their edge once the dad left the business.

[thepupil]

Spekulatius,

As a disappointed Loews shareholder of 3.5 years, I have to agree with you. This was once a 30% position for me and felt like a no-brainer (it is now a 8% position, and should be a 0% as i continue to find better places to put my money, but I'm in no rush to sell at 0.88 NAV on lower valuations of BWP and DO, my NAV assigns no value to Hotels or Highmount and values the GP conservatively).

 

It was a good way to learn about investing w/o losing money though. I have made 10% on some lots and over 30% on others, but the holding has been a big drag. I can handle underperformance if I feel management is growing earnings power and intrinsic value. But I don't feel that way. The Tisch's just seem too static, the cash generation or asset conversion activities too meager.

 

I though was getting a solid shareholder aligned management team at a 20-30% discount to a growing NAV. But what I did not realize was

 

a) Diamond Offshore was overvalued and poorly positioned (lots of old rigs that are about to be obsolete) so my discount was not as big as i thought. My fault for accepting market price as a rough proxy of intrinsic value.

b) CNA is undergoing what has to be the slowest turnaround in history. It looks just a little better each quarter and year.. Just enough to give one hope, but never enough to give one conviction.

c) What you said about boardwalk

d) Corporate overhead is actually not all that low and negates a surprisingly large amount of subsidiary cash generation

d) the Tisch's would go on a hotel acquisition and renovation spree, which may prove a good use of capital but for now just looks like they poured more money into a subsidiary that generates no cash or earnings and the market values at 0

 

Loews is kind of stuck. They are dedicated to always having a multi-billion dollar pile of cash, which is fine, but the underlying businesses don't generate enough cash to move the needle enough in terms of growing earnings power or diversifying from a melting ice cube fleet of old drillers, an obsolete network of pipelines, and a traditionally shitty insurance company that might be getting a little better.

 

Let's play the "I'm 25 years old and obviously know everything and will tell experienced business men what to do" game. This is what I think the Tisch's should do with Loews.

 

1) Roll the Boardwalk GP into the LP and sell Boardwalk Pipeline to a large MLP that has a much lower cost of capital in a stock for stock tax efficient transaction; there are still some good assets in there and BWP trades for an 8+% yield while its peers do not. This would monetize the GP (that the market values at 0) and get Loews out of this business that has made them a just okay return.

 

2) Use the shares of acquirer MLP to retire more stock in a stock for stock exchange w/ parentco.

 

3) let DO die the slow death that it already is, upgrade and buy new rigs when it makes sense, don't when it doesn't. i actually think they've played their cards right with this one in sitting out the rig building fest.

 

4) sell cleaned up turned around CNA for a slight premium to book in a stock for stock transaction (tax efficiency)

 

5) use insurer acquirer shares to retire more shares.

 

7) Take the company private with everything that is left, sit in the Loews Regency, eat power breakfasts, go on CNBC way too often, and just chill and not have to deal with shareholders like myself who don't accept a sub 5% ROE. 

 

The brothers Tisch just aren't building earnings power enough to justify Loews in its current form. They need to do something. Otherwise they should just stop being in this business and enjoy being rich.

 

Plan B (from brother Thomas Tisch):

 

1) Load up on SHLD options, bonds, and stock, announce plan to buy out minority shareholders of SHLD and cause short squeeze

 

2) Profit.

 

 

[CorpRaider]

Awesome and amusing post.  I pretty much wrote them off for at least this generation when I listened to the call after the did the bond offering and an analyst was trying to tease out potential uses and the discussion was something along the lines of we're going to keep it at the holdco level and invest in marketable securities but that's not why you should invest in L, because we're not as good at that as others and that's "not what we do", and the analyst was like, but don't you already have about $800 million in marketable securities at holdco and they were like "uh, yeah but that's not what we do."

[thepupil]

Corp, I'm glad you enjoyed it. You are referring to the moment where Jim Tisch told people to buy Berkshire if they wanted a company that was going to buy equities and then realized his own company has a large equity portfolio and the analyst called him out on it. This was a big moment for me too in giving up on them. I consider myself patient, but not this patient.

 

 

See below.

 

Robert Glasspiegel - Janney Montgomery Scott LLC, Research Division

 

Right. But you're in a negative carry on it, so I was wondering -- should we think, over the next 3 to 5 years, the $1 billion is just going to be used on your trading portfolio, or this gets your sort set of acquisition team to a different level that you can do deals that you might not have done before? I mean, what do you anticipate the primary use is going to be over the sort of intermediate term?

James S. Tisch - Chief Executive Officer, President, Member of Office of the President, Director, Member of Executive Committee, Member of Finance Committee, Chairman of Diamond Offshore and Director of CNA

 

Bob, I don't know. But the thing I do know is that over the past 15 years or so at least, we've had cash balances of $2 billion, $3 billion, $4 billion, $5 billion or $6 billion. We never worried about spending it. But lo and behold, the incoming cash that we had coming into Loews was spent either buying businesses or buying our shares or supplying capital at attractive returns to the businesses that we own. So somehow or other, we're able to find investments to make. And the thing that's driving us, though, is, like I said in my prepared remarks, we find it's much better to raise capital when the rates are attractive rather than to raise it when you need it. When you need it, the debt or the equity capital can be very, very expensive.

Robert Glasspiegel - Janney Montgomery Scott LLC, Research Division

 

Totally understood. But you didn't mention buying stocks. You're buying bonds with the money as sort of a potential avenue to employ over the next 3 to 5 years. I mean, I know -- public comments about bonds, I would think rates would have to go up a decent bit to think about putting money at the corporate level there.

James S. Tisch - Chief Executive Officer, President, Member of Office of the President, Director, Member of Executive Committee, Member of Finance Committee, Chairman of Diamond Offshore and Director of CNA

 

Here's what I'd say. If you want to buy the stock of a company that's got a significant equity portfolio, go to Berkshire Hathaway. We do not think that we are going to generate significant long-term returns for our shareholders by having a large equity portfolio. We're looking to either buy in our shares, buy another business or invest in our own businesses. That's the main way that we're going to build value for our shareholders. We have...

 

Robert Glasspiegel - Janney Montgomery Scott LLC, Research Division

 

You do have a trading portfolio for a reason, though. Right?

James S. Tisch - Chief Executive Officer, President, Member of Office of the President, Director, Member of Executive Committee, Member of Finance Committee, Chairman of Diamond Offshore and Director of CNA

 

Say again?

Robert Glasspiegel - Janney Montgomery Scott LLC, Research Division

 

You do have a trading portfolio for a reason.

James S. Tisch - Chief Executive Officer, President, Member of Office of the President, Director, Member of Executive Committee, Member of Finance Committee, Chairman of Diamond Offshore and Director of CNA

 

Yes, yes. We have an equity portfolio of about $500 million, $600 million. We have that because we do want -- we do have expertise in investing in equities, and we do think we can do a good job at it, combined with the fact that by having the equity portfolio, it keeps us closely in touch with the markets and what's going on. But in terms of that being a line of business or an avenue to significant shareholder value growth, I just don't think that's going to be the place.

[CorpRaider]

LOL.  Yep!  That was it.  Damned nice transcript management by you, I must say.  I was like, "did this guy just smoke marijuana or what?  He is saying they don't do that but then why do they already have a portfolio almost that big that he apparently forgot about."  Hey I read they're going to offer free wifi in their hotels though, so they've got that going for them. 

 

 

EDIT:  Hah!  GOOG just stuck a Loews hotel add at the bottom of my screen.

 

 

[thepupil]

LOL.  Yep!  That was it.  Damned nice transcript management by you, I must say.

 

while I would love to tell you I expeditiously file a transcript of all conference calls of my holdings, my "transcript management" policy consists of going on Seeking Alpha and searching the ticker. Bloomberg also has them, I believe, but Seeking Alpha is free.

 

http://seekingalpha.com/symbol/L/transcripts

[thepupil]

In a never ending game of whack a mole where challenges at one of Loews mediocre businesses continually outweigh any gains in another mediocre business, Loews falls again today after killing the distribution at MLP sub BWP (down ~35%). CNA actually looks like it is making nice traction.

 

With updates to CNA, DO, and BWP prices, Loews is now at 90% of NAV (marking Highmount, Hotels, BWP GP at 0 now), with 75% of NAV in CNA and net cash.

 

The only positive here is that CNA's gains and a re-rating toward book have kept most sharheolders in the green (on an absolute basis, not relatively), despite big losses at BWP and DO. Loews desperately needs to refresh its business mix and diversify away from BWP/DO/CNA. It isn't a matter of making some great distressed acquisition, it's a matter of protecting the company from its exposure to three challenged capital intensive businesses.

 

At some point, activism may be on the table here. It'd be tough with the Tisch's so entrenched but when do Davis and Southeastern start to become less tolerant of this performance.

[loganc]

In a never ending game of whack a mole where challenges at one of Loews mediocre businesses continually outweigh any gains in another mediocre business, Loews falls again today after killing the distribution at MLP sub BWP (down ~35%). CNA actually looks like it is making nice traction.

 

With updates to CNA, DO, and BWP prices, Loews is now at 90% of NAV (marking Highmount, Hotels, BWP GP at 0 now), with 75% of NAV in CNA and net cash.

 

The only positive here is that CNA's gains and a re-rating toward book have kept most sharheolders in the green (on an absolute basis, not relatively), despite big losses at BWP and DO. Loews desperately needs to refresh its business mix and diversify away from BWP/DO/CNA. It isn't a matter of making some great distressed acquisition, it's a matter of protecting the company from its exposure to three challenged capital intensive businesses.

 

At some point, activism may be on the table here. It'd be tough with the Tisch's so entrenched but when do Davis and Southeastern start to become less tolerant of this performance.

 

At some point, the line between patient capital and ineptitude is crossed.  I am hard pressed to say that line has been crossed here, given the track record.  But, a track record is the past, and it is simply hard for me to see how one can compound capital high rates by redeploying into offshore drilling, gas pipelines, etc.

 

I think one of the more infuriating things should be the "lotta value" comic book or whatever.  Why not spend that capital on buying back shares rather than making a comic book?

 

[LowIQinvestor]

Good day to BUY Loews. Discount to Book value has widened

 

 

[thepupil]

having divorced my capital from Jim Tisch after over 3 years of a loveless stagnant marriage, I've been awaiting a chance to run back for a lurid spicy affair. I see an 88% price to book as less than enticing.

[vinod1]

I am coming around to the view that Loews resembles a dog and pony show rather than a good capital allocator/owner operator investment. They create a set of publicly traded subs with small float and invariable the parent trades at a discount to the sum of the parts. So this creates a good hook to entice value investors, since it is easy to show how much the parent is undervalued and all the other investments that we are getting for "free" if you back out the subs at market price.

 

The only sensible thing they seem to be doing is buying back the stock, which due to the perennial discount to sum of parts, increases book value.

 

Vinod

[LowIQinvestor]

I understand your viewpoint, but the price seems to reflect those concerns.

 

Last I checked, CNA's combined ratio has been improving ( around  97%).. Need to double check this.

 

I just think that Loews shouldn't trade in excess of a 10% discount to book value. But I also don't think it should command more than 1.2 times book value.

 

I'm a buyer today at $41.70.

 

Full Disclosure: If the world ends and the market tanks by 50% like everyone is saying then this investment will not turn out well! Happy Friday

[Palantir]

^When has this firm not traded below BV? That's all they do!

[Myth465]

^When has this firm not traded below BV? That's all they do!

 

Yes its a holding company. It will never trade at book value, and best I can tell they are distroying value or breaking even. CNA getting better, DO treading water, BWP cut in half, the hotels have done nothing in the 4 years i have watched, and they are not very good oil and gas operators. Bought gas at the top.

 

Why should L trade above book value when most holding companies are below book?

What are the subs worth?

How will the Tisches create value over the next 5 years?

 

Consider the fact that they bought nothing during the biggest recession of the last 50 years. When does cautious and looking for value, just become lazy / scared, and no plans to do anything?

[LowIQinvestor]

Interesting to see CNA unchanged during this recent sell-off .

 

 

[BargainValueHunter]

^When has this firm not traded below BV? That's all they do!

 

Yes its a holding company. It will never trade at book value, and best I can tell they are distroying value or breaking even. CNA getting better, DO treading water, BWP cut in half, the hotels have done nothing in the 4 years i have watched, and they are not very good oil and gas operators. Bought gas at the top.

 

Why should L trade above book value when most holding companies are below book?

What are the subs worth?

How will the Tisches create value over the next 5 years?

 

Consider the fact that they bought nothing during the biggest recession of the last 50 years. When does cautious and looking for value, just become lazy / scared, and no plans to do anything?

 

It seems like not buying anything in Q1 or Q2 2009 is right up there with Lampert not selling or spinning off RE in 2006 and 2007.

 

Even the big guys can make huge, huge mistakes I guess...

[LowIQinvestor]

Forgot who posted this, but it is very helpful in tracking the discount to book value: Thanks!

 

https://docs.google.com/spreadsheet/ccc?key=0ApYtMgkh8FHjdHNvVHZJUk51QjNzZ3doSkxjaTlweHc#gid=1

 

Diamond Offshore (DO) is moving following earnings.

 

I am a buyer

[thepupil]

that spreadsheet is not updated for the $1B of debt they took on.

 

Loews is currently

26.61 CNA Per Share

9.76 DO Per Share

16.11 BWP Per share

$41.60 Public Holdings

 

12.14 Cash and investments Per share

-4.36 debt per share

7.77 Net cash and investments per share

 

49.37 Per share in Public invesments and net cash and securities. 12% upside to the share price.

 

The problem with what you posted above is it values highmount at 1.5B. Highmount is an out of the money option that has not made money in years. You are paying less than zero for it, but valuing it at 1.5B is tough. Hotels has also not made money since like forever and will not be sold. Boardwalks GP is not receiving anything with BWP's distro on pause.

 

The tisch's mother lives in the Loews Regency. The Tischs' are good jewish boys and aren't going to sell their mother's home. Corporate overhead of $100MM per year easily eat up the non existent earnings power of those businesses that you aren't paying for but have optionality (Highmount, BWP GP, Hotels).

 

I owned Loews for over 3 years and am bitter. Loews is a safe investment and it's hard to lose money investing in it because of the stuff you get for free and the cash buffer.

 

But the 20% discount is not as exciting as it first seems.

[LowIQinvestor]

I agree with some of your comments and your assessment of the value of Highmount.

 

However, if one believes that CNA and DO are significantly undervalued than there is much more upside than 12%. After-all these values are not static and the market is not always efficient.

 

 

 

 

[thepupil]

fair enough. The slow CNA turnaround excited me too when i owned this, but it was more exciting at 0.7X book than it is at 0.9X. DO does not strike me as undervalued, but to each his own.

 

I just popped in to say that spreadsheet was stale and hate on Loews a bit. I am all for buying things at discounts to NAV and I think Loews is safe, but three years of like a 5% ROE and no growth in earnings power while owning it turned me off.

 

I bought some SPLP at 0.7X my estimated NAV based on market value of holdings (some of which i think are undervalued) yesterday. Mr. Lichtenstein is a controversial fellow who charges full fees but he seems to be a moneymaker and just bought back 10% of shares. I need a little aggression when buying these investment vehicles at a discount. And the Tischs' just don't have that*

 

*because I've sold I'm sure they'll proceed to do like 10 value creating moves and rerate to 1.3X book and you'll make 60% or something and make me look like a chump

[spark411]

Forgot who posted this, but it is very helpful in tracking the discount to book value: Thanks!

 

https://docs.google.com/spreadsheet/ccc?key=0ApYtMgkh8FHjdHNvVHZJUk51QjNzZ3doSkxjaTlweHc#gid=1

 

Diamond Offshore (DO) is moving following earnings.

 

I am a buyer

 

i am very impressed with the spreadsheet.  is there a place you recommend i go to to learn?  I especially like how the share price fills in.

[bttmline]

Sorry, I haven't updated the spreadsheet in almost two years. I marked down Highmount to $0 and updated the cash and debt position.  I don't believe the hotels or Boardwalk GP are worth $0. I have to update my values after looking at them some more.

[FCharlie]

Pupil and/or others:

 

I know you guys have been frustrated and you've made your comments as to why. I am specifically looking at DO here.

 

When I look at the 10K, it looks like they are spending over $4 billion on new cap ex projects soon to be completed... I only see a few rigs or drillships cold stacked.  I don't see an aging fleet that should be put to death because it's almost obsolete.

 

It seems to me that the problems with DO are simply that they are at, or near, the bottom of the cycle.... over supply is a huge concern industry wide... and day rates coming down are a concern.

 

Isn't this exactly when you would want to buy into this sector? Even at the bottom of the cycle we have a P/E that's lower than most stocks, with the special dividend we have nearly a 7% yield, and now we have share repurchases which I haven't seen in years.

 

Thoughts?

[thepupil]

 

Loews' HighMount Exploration & Production to pursue strategic alternatives

Loews announced that its oil and gas exploration and production subsidiary, HighMount Exploration & Production, is pursuing strategic alternatives, including a potential sale of the business. At March 31, HighMount's total assets, primarily comprised of natural gas and oil reserves, had a carrying value of approximately $1.1B. HighMount had long-term debt and other liabilities totaling approximately $592M at March 31. Loews may incur a loss as a result of this process

 

Loews' perennial money loser that is valued by market at 0 is in play. $1.1B of assets with $592MM of debt. $500MM of book value.

 

At present Loews trades at 0.83X book value. 0.9X my NAV (public securities + net cash, 0 value for hotels highmount and boardwalk general partner).

 

The sale will not be that significant. Even if they got $600MM for it (above book which is unlikely). It would only bring my NAV from $48.70 to mid $50's  per share. But I actually think this is a very important development, because it represents Loews raising cash at an inopportune time when it already has a ton of cash and liquid securities (about $5B).

 

Something more could be in the works here.

 

 

Charlie, I just saw this. I have no well developed thoughts on DO or insight into the rig cycle.