FFHWatcher
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Posts posted by FFHWatcher
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Just got this response from Qtrade.
"The Fairfax dividends have paid to your accounts today. You should see the funds in your account later today or tomorrow. The US dividend was credited to your Canadian $ account at a rate of 1.0435.
Regards,
Customer Support
Qtrade Investor
TF 1.877.669.3977
E customersupport@qtrade.ca"
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Qtrade has not deposited it into my account yet?
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Do you figure 'business journalists' have increased your overall investment gains or reduced them?
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No offense to all the parties that are chiming in on this thread but isn't this an economic discussion by a bunch of value guys who generally state "we don't have a clue where the economy is going, we just focus on the valuation of businesses." So, are you guys valuation guys or economists? I am, of course, stating this facetiously. But really, if most economists get it wrong most of the time, aren't we really just guessing and/or regurgitating what someone else has already said, whom we agree with? Is there any value to be gained by discussing this? Is anyone educated as an economist (not that it really matters based on their track record)?
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I spoke to the company and found out the following (my numbers are probably a little off as I'm doing this from memory):
1) The 25 Million shares of SD that Fairfax now owns includes the 18 Milllion and change that the convert will mandatorily convert to in 5 years. There is some provision to adjustments to this 18.x number, but I don't know what that is and I think they are using the same number SD assumed in their press release for now.
2) The company did buy more shares in December, roughly 5 Million assuming they owned 2 Million before the convert. Not sure if they bought as part of the equity offering, but I assume thats where the shares come from
3) Prem did indeed but 147k shares for his personal account. This is the first time they have ever disclosed a personal purchase by Prem, although they would only do so if FFH owned 5-10% of the company and they are required to do so (so assume Prem doesn't own any ICO, SFK, Brick, etc.)
A few other thoughts:
Tom Ward sold 2 Million shares as part of the december offering, but he is still leveraged (has his shares pledged for bank loans) so I don't think this is a negative. FFH isn't stupid and was buying at the same time.
If FFH thinks that we will see deflation in the short term and inflation in the long term - at least this is my interpretation of their public statements - then the convertible they bought is an amazing investment. For the next 5 years they get a safe bond, and then they have a huge equity kicker in a commodity business, potentially worth multiples of their initial investment in an inflationary environment.
The $10 Calls for January 2012 on SD are offered at $4.00! I think its safe to assume that a $10.67 (roughly the conversion price) in 2015 (5 years from now) is worth at least $5.00 (more likely around $7-8 if I had to guess). That means if they got 18 Million calls worth $5 apiece right now on a $200 Million convertible, they basically got an instant rebate of $90 Milllion dollars. This calculation is much more meaningful for an instrument like Buffett's GE and GS convertible preferreds, but should give some idea of the huge value of this conversion feature.
Great job. Thanks for the digging. I guess I can't understand how to read the SEC docs? It seemed pretty clear that they purchased the 25M shares as common shares, not as converts. There was nothing in that filing that mentioned the detail that you just outlined. Weird, but I really appreciate taking the time to call the company. It is good to know that someone still digs deeper than their keyboard. We (me) should take a lesson from this, IMO. Maybe a lesson on reading the SEC statements too (speaking for myself, of course) :)
Edit.
20 page SEC document. Item number 4 on page 10/11
Item 4. Ownership.
Based on the most recent information available, the aggregate number and percentage of the shares of common stock (the “Shares”) of SandRidge Energy, Inc. that are beneficially owned by each of the Reporting Persons is set forth in boxes 9 and 11 of the second part of the cover page to this Schedule 13G, and such information is incorporated herein by reference.
The number of Shares as to which each of the Reporting Persons has sole voting power, shared voting power, sole dispositive power and shared dispositive power is set forth in boxes 5, 6, 7 and 8, respectively, on the second part of the cover page to this Schedule 13G, and such information is incorporated herein by reference.
Shares reported as beneficially owned include Shares issuable upon conversion of certain convertible securities of SandRidge Energy, Inc.
Neither the filing of this Schedule 13G nor the information contained herein shall be deemed to constitute an affirmation by V. Prem Watsa, 1109519, Sixty Two, 810679, Fairfax, Fairfax Inc. or Odyssey America Reinsurance Corporation. that such person is the beneficial owner of the Shares referred to herein for purposes of Section 13(d) or 13(g) of the Securities Exchange Act of 1934, as amended, or for any other purpose, and such beneficial ownership is expressly disclaimed.
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FFHWatcher: I have not done any serious digging yet on SD (although I have been intrigued by the company for quite a while).
It appears that FFH is unloading 28.95% of its shares ???
http://www.gurufocus.com/StockBuy.php?GuruName=Prem+Watsa
I have spent some time in the past week or so reading about SandRidge Energy. I like to follow what FFH owns to try to learn how to discover value myself or at least try to shed some light into how FFH discovers value.
Without having a strong background in Nat Gas, it has been challenging. Here are a couple of points;
1/ Early stages of building a significant Nat Gas exploration and development company
2/ Key guy is Tom Ward. He is the co-founder of Chesapeake Energy with Aubrey McClendon. Tom was the operations guy. Chesapeake was Aubrey's vision. SandRidge is Tom's. Tom left in 2006 to start his own Nat Gas play. He bought into a company (Riata Energy), took over the CEO position and then started acquiring using debt and shares. Changed the name to SandRidge shortly thereafter. Main area is the WTO (West Texas Overthrust). Tom has around $500M invested in Sandridge (25M shares x $20 = $500M but market value is about half. Essentially all his shares are pledged for personal loans).
3/ It looks like FFH got interested in 2008 and gradually build up their position to about 1M shares. FFH bumped that up to about 25M shares, worth around $10 each or $250M. This occured in or around Dec. 2009, last month.
4/ In addition to the shares, it looks like FFH purchased 2M 6% Convertible Preferred Perpetual for $200M which automatically convert to common shares in 5 years at just under $11 or around 18.5M shares. These funds along with other debt is being used to fund an acquisition for SandRidge.
5/ Total investment looks like around $450M, unless I somehow double counted the new common share purchases and the 6% Convertible Preferred Perpetual. Capitalization is about 200M common shares plus likely over $2B in debt now. Maybe $2.5B. It goes up fast when you are making $800M acquisitions. :-)
6/ I think the docs also show that Prem bought 147k shares for his personal account. Almost all these loans and purchases happened in Nov/Dec. 2009.
7/ I find it interesting that FFH is investing so heavily in this. I have a lot to learn about Nat Gas companies. Very young company. Very little revenue compared to debt which is exploding but so are reserves, etc. Potential looks huge. Around 2Tcf of Nat Gas in proved reserves?
All the above may have errors. I apologize if it does. I wanted to start a discussion on this company. For new readers looking to learn, start with Sandridge Energy's homepage and read their 2008 annual report as well as their investor presentations and a transcript of their most recent quarterly report conference call. It is on the SeekingAlpha website.
Looking fwd. to learning more about Nat Gas and discussing SD/SandRidge Energy. Interesting investment to say the least, IMHO. Offline is ok too.
Not sure what that was but it was an anomaly. That was last year when they only owned 800K shares. They now own 25M plus another 18.5M assuming the 6% converts in 5 years. It might have been FFH moving the shares around? Either way, 28% of 800K shares is nothing compared to what they own today.
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I thought I would add a few more things.
1/ I just found this today. http://www.bloomberg.com/apps/news?pid=20601103&sid=a0osJlVgkq8I&refer=us
Many of you may have heard that back in Oct 2008 when Nat Gas stocks were getting hammered, along with everything else, Chesapeake CEO Aubrey McClendon had to sell virtually all of his CHK stock because he used margin to accumulate over $1B or $2B (either way, lots of $) in stock. He was buying in the $50's on margin only to be pretty much completely wiped out with margin calls. As it turns out, a similar fate happened to Tom Ward, CEO of SandRidge. He ended up selling his interest in a bunch of wells back to SandRidge and it looks like he has also sold shares to pay down line of credit. $60M here and $50M there, etc. These Nat Gas guys are certainly a different breed than WEB and PW.
2/ Century Plant - Approx. 18 months ago, OXY (Occidental Petroleum) and SD formed a partnership to build an $800M plant that deals with C02. As I understand it, SD builds it, OXY pays the bills and in return there is an agreement involving C02, Methane and maybe something else for about 30 years. I believe this plant will allow SD to extract more Nat Gas from their wells that are close to the Century Plant in W. Texas, as C02 seems to be a limiting factor. You can't just release or burn off the C02 for environmental reasons if it is mixed in with Nat Gas. Therefore, if you find Nat Gas but there is a lot of C02 in it, you need to deal with it. For some reason, OXY wants C02 to help them get something out of the ground (can't remember what>>>). Anyways, the added production that the Century Plant could be/looks to be significant for SD. Methane is also involved and may add revenue in the future (do you see what I mean by not having a full understanding of Nat Gas!!). Sorry. Anyways, this asset is key.
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I have spent some time in the past week or so reading about SandRidge Energy. I like to follow what FFH owns to try to learn how to discover value myself or at least try to shed some light into how FFH discovers value.
Without having a strong background in Nat Gas, it has been challenging. Here are a couple of points;
1/ Early stages of building a significant Nat Gas exploration and development company
2/ Key guy is Tom Ward. He is the co-founder of Chesapeake Energy with Aubrey McClendon. Tom was the operations guy. Chesapeake was Aubrey's vision. SandRidge is Tom's. Tom left in 2006 to start his own Nat Gas play. He bought into a company (Riata Energy), took over the CEO position and then started acquiring using debt and shares. Changed the name to SandRidge shortly thereafter. Main area is the WTO (West Texas Overthrust). Tom has around $500M invested in Sandridge (25M shares x $20 = $500M but market value is about half. Essentially all his shares are pledged for personal loans).
3/ It looks like FFH got interested in 2008 and gradually build up their position to about 1M shares. FFH bumped that up to about 25M shares, worth around $10 each or $250M. This occured in or around Dec. 2009, last month.
4/ In addition to the shares, it looks like FFH purchased 2M 6% Convertible Preferred Perpetual for $200M which automatically convert to common shares in 5 years at just under $11 or around 18.5M shares. These funds along with other debt is being used to fund an acquisition for SandRidge.
5/ Total investment looks like around $450M, unless I somehow double counted the new common share purchases and the 6% Convertible Preferred Perpetual. Capitalization is about 200M common shares plus likely over $2B in debt now. Maybe $2.5B. It goes up fast when you are making $800M acquisitions. :-)
6/ I think the docs also show that Prem bought 147k shares for his personal account. Almost all these loans and purchases happened in Nov/Dec. 2009.
7/ I find it interesting that FFH is investing so heavily in this. I have a lot to learn about Nat Gas companies. Very young company. Very little revenue compared to debt which is exploding but so are reserves, etc. Potential looks huge. Around 2Tcf of Nat Gas in proved reserves?
All the above may have errors. I apologize if it does. I wanted to start a discussion on this company. For new readers looking to learn, start with Sandridge Energy's homepage and read their 2008 annual report as well as their investor presentations and a transcript of their most recent quarterly report conference call. It is on the SeekingAlpha website.
Looking fwd. to learning more about Nat Gas and discussing SD/SandRidge Energy. Interesting investment to say the least, IMHO. Offline is ok too.
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Great job. Your analysis seems to have been right. Best not to get greedy. 100% in < 1yr is excellent.
I like the 'Very Long' comment :)
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Remind me again why shorts have to cover before FFH delists from NYSE? Can't shorts eventually cover their short using the exact same shares but trade them through the TSX? Isn't shorting simply selling FFH shares today and buying them back later? Who cares where they obtain the shares?
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I've read through this thread and am still a bit unclear on this. I own some FFH shares in the United States through Scottrade in both my equities account an an IRA. Are there any steps I need to take or will the shares automatically be converted to the Toronto Exchange?
Regarding dividends, do I now somehow have to report them to Canada?
Here is my opinion...
If you own a common share of FFH than you own a common share of FFH. Period. There is no difference between the FFH shares purchased through the NYSE and or the TSX. NYSE is in US $ and TSX are Cdn $. Same shares, different currency. In the future, if you want to sell the shares of your FFH in your US$ account, than you should be able to select the TSX to sell your shares and select the ffh.u if you don't want a currency exchange to occur. Isn't it similar to buying a 2009 BMX M5? It doesn't matter where you buy it, it is still the same car just a different dealer (aka exchange).
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I believe the Cdn Gov't (Canada Revenue Agency in particular) do not allow any other currencies other than the Cdn $ within an RRSP. When a US$ investment is sold, it is therefore automatically converted to Cdn$. If you want to purchase a US$ stock/investment, you need to take your Cdn $$ cash and convert to buy. If I am not mistaken, US $$ denominated Mutual Funds are also not RRSP eligible. Therefore, I do not believe it is a system or technical problem as to why RRSP providers can not offer US $ currency in an RRSP.
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There are so many conflicts in the advisory business.
Too few clients and the advisor doesn't make a living.
Too many clients and he can't keep up with all their needs but he makes a great living.
With many clients, let's say he wants to move from investment A to investment B. In Canada, you pretty much have to see each client individually and get their authorization. With hundreds of clients, that is simply not going to happen. If you are low on the totem pole, you won't be seen first, if ever.
I think a client can improve the overall experience and result. As a client, I would drive that relationship. I would set up quarterly or semi-annual regular meetings with the advisor to ensure your account is kept up to date. Do not leave it up to them to schedule appt.
Ideally, I completely managed portfolio approach where you invest in a portfolio that makes the important asset allocation and specific investment decisions on your behalf. The portfolio manager makes the trades without your specific authorization for each trade and simply reports to you quarterly or semi-annually.
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Unfortunately...shot in the dark, at least here in Canada. Probably best to get a referral from a friend/colleague and that sure isn't a guarantee, just a good place to start. If you get a good feeling from the advisor when you meet with them, it still doesn't really mean anything. Remember, any references that he gives you are going to be good. He/she is not going to give you the names of the last 3 clients that fired him/her. I think good advisors are few and far between, especially if they primarily use mutual/pooled funds. At the end of the day, the advisor is the only person who is assured to make money off the relationship...but at least I'm not cynical about the industry :)
FFHWatcher
retired financial advisor/CFP.
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wow.
excellent.
thanks.
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I appreciate the home loan ideas -- I agree though that it is off topic. I walked in the door and checked my messages and was hit with the 40% down news and the delisting news at the same time (that's the only relation).
What are you referring to when you mentioned the '40% down news and the delisting news....' ?
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I figure FFH will save enough money to hire another Brian Bradstreet and another Prem, as long as we don't include the dividend in his comp. ;)
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Trade on the TSX in Cdn$ and US$ ? Cool.
That is the first time I have heard that option. Sounds cool at first glance.
Shorts are ok. FFH does it to others.
Naked shorts and short and then distort/issue a negative public analysis and hire underhanded, illegal, immoral, and unethical people to drive down the share price...no love there >:(
Hmmmm? What about the options?
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What did Prem mean by....
The Toronto-based owner of Canadian and U.S. insurers including Crum & Forster is 75 percent owned by about 10 individual shareholders, Watsa said. Most of those have been with the company “for a long time,” he said, without naming the investors.
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Ok, now I am curious.
Why do you feel it is important that Buffett has mentioned or is aware of Prem's existence?
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Yahoo Finance still shows the mkt cap as $6B but that obviously hasn't been updated with the $1B share issuance of 2.9M shares. $6B + $1B = $7B.
New shares o/s after share issuance related to ORH = 19.687M
Current share price (US$) = $345 (2.9M share issuance was at $347)
Mkt Value = $6.792B
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Great post Dazel...except for the Cramer part ::)
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Great work. Thanks Sanj.
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Thanks for disclosure. We are all curious until the very end ;D
It seems unusual to say that the market has missed this as FFH has moved up from $250 to $350+ in <3month. $100/share x 17M shares = $1.7B increase in market value. Has the market missed it?
Was it fairly value in July before the $100 move? Is FFH more or less valuable with 100% ORH ownership (ORH is trading at $64.99...do you think the deal is going to close ;))?
Having said all that, I agree with you and have been a buyer as of late (thank you ORH>>FFH). I think the $100 move was to make up for the previous gains and that the increase in value over the past 3 months is not fully represented in the current share price. Let's assume they earned half of what you are proposing. How much extra value does that bring to FFH? They now have the additional investment portfolio size and the crew at HWIC can now invest and earn a return based on an asset base that is $1B larger than just 3 months ago. I did plug in the newer stock prices into the excel spreadsheet that someone generously provided on the board and the gains were .... large. They were also pretty good post Sept. 30th.
FFH dividend
in Fairfax Financial
Posted
Spread? It looks like the max spot rate on Tues and Wed were 1.068. I am told the spread is generally about 2.5 - 3.5 cents from the buy to the sell. Therefore, brokers are making about 1.5 cents if their total spread is 3.0. If the max spot rate was 1.068 subtract 0.015 (broker profit) = $1.053. Given that the low point was about 1.06 on both days, I am surprised at people getting over 1.06. Are their brokers not making any money on the conversion (yeah, right!!!) or what gives? Why was I the smuck who got the lowest rate by about 2 cents versus the highest conversion rate? It isn't big money but I am just looking for some insight on whether or not I am getting screwed on every conversion I make at Qtrade or was it a one time fluke? Qtrade said that most brokers have a spread of 3.5 cents between what the buy and the sell. Any comments would be appreciated.