giofranchi

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

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

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

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

I agree 100%. Cheers, Gio

ni-co, thank you for the nice discussion! My view is the US have gone through QE1, QE2, and QE3 in the last 4 years… They have printed lots of money, and have also prompted the EU to do the same. Now what?! Finally the EU has decided to follow suit, and the US already starts complaining because the USD is getting too strong?!… ??? The USD is getting stronger, and imo will continue to do so, because it is a safe haven among currencies… And in a deleveraging there might be a lot of volatility, but ultimately safe havens will be sought out and coveted. I simply don’t see a way to stop this process. Everyone, the US, the EU, Japan, China, etc. must print money. If they refuse to do so, their economies stagnate, like it has happened in the EU and Japan before they both started printing money. Now, if everyone is printing money, which currency is going to get stronger? The USD (imo). Gio

I think Prem Watsa said something very interesting on the subject of this thread during the Q4 2014 Fairfax Conference Call. I quote: Protection on the downside… Given the fact all our investments depend somehow on what the market does, protection on the downside should be paramount in choosing what to buy or not to buy. In this regard I think it is very difficult to invest without taking a look at the general picture too (at least some macro reasonings): for instance, a bank or an auto company might seem very cheap compared to its ttm earnings, only to discover that in a recession those earnings get halved… Gio

That’s why I said the situation is scary… Think about it: the best solution you see is for the 3rd largest bond market in the world to leave the Euro… Wow! We better expect a lot of turbulence…!! ::) Gio

Well, I just don’t see how… If the US say to the EU: stop printing, because the Euro has been devalued too much! And as a consequence Draghi stops buying Italian government bonds, and the creditworthiness of Italy then starts to matter once again… well, Italian government bonds yields will spike up like they did in 2011… but this time what’s going to bring them down? And, given the shape it finds itself in, Italy simply cannot afford paying high interests on its debt… Gio

This makes a lot of sense... though its consequences are a little scary... Gio

Thank you, LakesideB! :) Gio

I mean: in Japan not even pension funds are buying government bonds anymore… The Japanese Central Bank right now is the market for government bonds! How could their price not be manipulated?! ??? Gio

I don’t think I agree 100% here… What I wanted to say is that imo it is no longer a matter of creditworthiness… Imo interests rates are clearly being manipulated, in order to relieve highly indebted governments from the burden of interests that otherwise would be unsustainable. Do you think anyone truly believe Japan would ever be able to repay its debt?! I don’t… Do you think anyone truly believe Italy would ever be able to repay its debt?! I don’t… Most observers by now think that France is in big trouble too... Things in Europe just get messed up by the fact we pretend we are a nation, but we are not, and probably will never be… So interest rates get manipulated also as a mean to reproach those countries which don’t conform diligently to what Germany dictates… Sorry to say this, I know you are from Germany, but I simply don’t see how else to read the EU situation right now… I repeat: it is no more a matter a creditworthiness: as long as inflation or deflation permit government and central banks to keep interests rates suppressed, they will stay very low and even get lower. Gio

Insane?!… Maybe!… Until you realize that governments, so much into debt as they are, will do anything to keep rates as low as possible for as much time as possible. Imo it all revolves around inflation: if it keeps going down, rates will follow suit. And if we finally experience deflation, rates might get near zero like Japan (and Germany already!). Gio

Could anyone post a pdf file of the transcript? Thank you! :) Gio