KPO
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Posts posted by KPO
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On 5/4/2024 at 11:27 PM, DooDiligence said:
Tracker(s)? or would that not be WEB's style. Do trackers separate liability from the parent?
Divesting minority positions with full voting rights and economic interest, similar to how they’ve acquired around 80% of a number of businesses in the past, but keep it around 80%.
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6 hours ago, longterminvestor said:
This might be the reason why the rail road was disjoined from the insurance company parent. Mr. Buffett installing the proper bulkheads in the new litigious world. Previously thought to be smart to lodge the operating co's inside the insurance companies to boast regulatory surplus and make it more difficult for a break-up post Buffett.
Reminds me of the Honeywell ear plug class action law suits as well. Good case study for this type of structure and ensuing litigation.
One catalyst for a quasi-breakup may be centered around limiting liabilities. Some of the subsidiaries, like BHE, aren’t wholly owned, so it would be unusual to go after a shareholder in a case like this. I’m not saying it can’t happen, because anything is possible, but modesty reducing ownership in subsidiaries like BNSF could be good financial and risk management in the future.
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https://www.dataroma.com/m/holdings.php?m=DJCO
Looks like the DJC board decided to sell down a portion of all four positions.
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TRC at the open
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7 hours ago, Cod Liver Oil said:
Does it make sense to sell calls against the portfolio in the non-taxable foundation accounts as a way to increase yield?
I do this in my Roth and traditional IRAs for stocks I perceive to be close to full value. Just wrote calls on SMG and some O&G yesterday. I’ve been doing this the last 15-16 years and have rarely been disappointed.
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Pipelines like KMI, WMB and ENB are solid options. There’s a little lodging REIT called Sunstone that I came upon at the beginning of COVID that had a neutral cash position at the time and is still under levered with a yield of around 7% on their two preferred issues. In similar vein there’s always HST, which yields around 4%
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14 hours ago, longterminvestor said:
More to mechanics of risk. Surety acts like insurance but its not insurance. Its much more of a financial transaction/credit facility than insurance. Its a big dance of 3 parties saying "I trust you, but not really, so to earn my trust you gotta pay me so I trust you a little more than I want to". Surety requirements take any situation from single A ball to the Major Leagues quickly. Surety basics: 3 players and I'll name them in reference to this case. Principal (Mr. Trump), Obligee (NY Court) and Surety (easiest one to understand as insurance company, and no market stepped up). The financial incentive for a Surety to enter a transaction is extracting the most money possible from the Principal in form of premium AND to be sure the Principal is money good for collateral sum in event of payment demand from Obligee to Principal and enjoined Surety. The Principal's incentives are the inverse of Surety, wanting to pay the smallest premium and post the least amount of collateral. Principal may achieve reduction in collateral by explaining to Surety winning in appeal is fait accompli because ect ect. The Surety Company eliminates the risk of non-pay to Obligee and ultimately the Plaintiff. Important to note in Surety underwriting, there's an old saying called the 3 C's - Character, Capacity, and Capital - Principal has to embody all 3 to qualify as a good risk.
So lets say we wanted to write this appeal bond or supersedeas bond. We could charge lets say 2.5% of $450M ($11.25M due at inception from Principal) and also as part of agreement we require $300M in cash to be wired immediately to us, and lastly we might add something for a margin of safety like "if the principal wins appeal, we will return collateral 2 years after last court doc is finalized" - lengthening the use of collateral float. We have use of $310M (gotta pay broker commission) for an undetermined period of time + 2 years if Principal "wins" or in event of Principal "losing" immediate payment at any point. The bet is how long will the money stay on our side of the fence - will this take years or days? Cause if its years, then maybe $310M is enough against $450M guarantee. Or if its months, in an unfavorable judicial venue for Principal, we need more premium paid/collateral posted.
This is more about amount and type of accepted collateral. With the right amount of collateral and an understanding of the facts in the case - like serious legal understanding of ultimate outcome and when it will occur, there is a perfect price of risk on this deal for a surety company - similar to a discounted cash flow from judgement day backwards on the perfect price on a business, gauged against interest rates. Both are unknown so that's why the game is fun.
I believe the entire reason why the 30 carriers declined, 4 brokers engaged, got put in front of the judge was court room theater to show $450M bond is an unreasonable amount and plea to reduce the bond amount to $100M. I personally believe the judge kinda knew the $450M amount was impossible to get from the beginning and the large size was done intentionally, more theater.
And with that, from the vault of Mr. Buffett's lessons on this type of topic directly/indirectly:
This is a fantastic post. Thanks for explaining this so clearly.
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CPRI repurchased ~45% of S/O in the last decade and almost 25% in the last three years. If the deal falls through I suspect management will fire the repurchases up again.
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More BTI
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6 hours ago, gfp said:
I believe the consensus is Jimmy Haslam #3
Agreed and was surprised this reference wasn’t picked up earlier. He obviously views the Haslams as scum, which sounds about right based on the fact pattern.
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6 minutes ago, Luca said:
Like?
AOS, although it likely doesn’t meet the valuation criteria.
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31 minutes ago, juniorr said:
any reason why there is a gap in purchase price and current price?
Some of it is dividend differential, but mostly it’s the combination of Venezuelan risk and to a lesser extent the possibility of an antitrust challenge of the deal.
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21 minutes ago, Gregmal said:
eBay is the furthest thing from a melting ice cube. The VIC write up posted yesterday sums it up as well as any of us could have in the thread. eBay will exist a decade from now, and it doesn’t need to do anything for us to make a satisfactory return.
Yeah, I don’t have illusions of meaningful free cash flow growth here, but I do envision per share growth driven by a stable to minimally decreasing business that repurchases shares at a rate that leads to modest FCF per share growth.
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7 hours ago, Gregmal said:
I’m not even sure what a cigar butt is in relation to todays investing world. Maybe merger arb? Generally I don’t have an interest in terminally declining businesses, which was always what my understanding of cigar butts was.
It like seems you and I bought EBay around the same time before posting about it. It probably qualifies, although I’d argue there’s a solid base of customers that makes this one more durable than something in obvious secular decline.
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2 hours ago, gfp said:
No clue if this New Mexico utility would be of interest to BHE, but their deal has just fallen apart and they are contiguous with BHE's western territories.
Thanks for sharing. The press release wording suggests they believe the ~$2.15 per share breakup fee is coming their way. This could become an interesting purchase.
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20 minutes ago, Spekulatius said:
I am a bit out of my depth, but I think SSD is much better run than Berkshires Mitek.
I’m sure that’s right, but my point was the product set overlaps to a large extent and Buffett bought it due to the simplicity and consistency of the business.
It probably brings up an inconvenient truth of many businesses inside of Berkshire in terms of them being sub-optimized for profitability (e.g. UP vs BNSF). I suppose this is upside if Abel is as good as many hope.
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26 minutes ago, Eldad said:
I was going to say LOW. 842 M to 577 M in past 5 years. 7.8% or so yearly.
Like AZO, it is never extremely overvalued and can therefore chug away constantly. I think it is a better business than AZO as well.
It looks like Lowe’s buyback is mostly debt financed as their debt has more than doubled to -$36B in the last four years. That said, the other Loews decreased their share count by about a third and paid down a third of their debt over the same period.
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5 minutes ago, juniorr said:
The issuing of debt 3 weeks ago was probably to pay back this and extend the duration
It seems kind of strange in an environment where rates are likely to decline from here plus their credit profile should continue to improve leading to a lower premium over the risk free rate. Oh well, I guess they can’t get everything right.
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1 hour ago, Gregmal said:
eBay
This was on my list as well. Almost 45% since the beginning of 2019. Not bad.
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1 minute ago, juniorr said:
Why would they redeem 4.875% notes 8 months early only three weeks after issuing 6.0% notes? Odd.
Buffett/Berkshire - general news
in Berkshire Hathaway
Posted
He rambled, but it was tax rate arbitrage. Also, you have to wonder if he isn’t trying to give Greg optionality with the larger cash position and a less ridiculously sized single equity position.