Jump to content

Fairfax Proposes To Buy Odyssey at $60 Per Share!


Parsad
 Share

Recommended Posts

  • Replies 100
  • Created
  • Last Reply

Top Posters In This Topic

"Fairfax intends to issue new equity under its existing shelf prospectus, the proceeds of which would be used to fully fund the proposed acquisition of Odyssey Re shares. Following completion of the proposed acquisition of Odyssey Re and the proposed Fairfax new equity issuance, Fairfax expects to continue to have in excess of $1 billion in cash and marketable securities at the holding company level."

 

Sounds good to me. Nice job guys!

Link to comment
Share on other sites

Given that Current book value per share is very close to $60, i think they are attempting to get the company for pretty much 1x book value per share. Must say i am disappointed with the price they are attempting to get ORH for, which should reflect the market rally (and hence the large increase in book value) since June 30th 2009.

Link to comment
Share on other sites

Can someone explain how the options contracts will be closed out and treated? Will the value on closing essentially be the difference between the strike and final buyout price? For example the last trade on Feb 40's was 11.10. Will that just move to a value of $20 on closing assuming the buyout price was $60 and will it automatically settle on the closing date?

 

I'm not looking forward to the tax consequences of this. I guess it's a nice problem to have... ;D But damn I hate friction.

Link to comment
Share on other sites

I don't understand why they didn't just offer a specific amount of shares of Fairfax, fixed to Odyssey's price today.  That would make the transaction tax-neutral and they wouldn't incur all the investment bank costs to issue new FFH equity to buy ORH with cash.  Cheers! 

Link to comment
Share on other sites

I don't understand why they didn't just offer a specific amount of shares of Fairfax, fixed to Odyssey's price today.  That would make the transaction tax-neutral and they wouldn't incur all the investment bank costs to issue new FFH equity to buy ORH with cash.  Cheers! 

 

That is a very good question, Sanjeev. It doesn't make any sense to me either.

Link to comment
Share on other sites

When they raise that equity, could they potentially get premium pricing above current prices on the large block of shares they sell? Could they have already talked to interested parties about the price the interested parties are willing to pay for a decent chunk of shares?

Link to comment
Share on other sites

I want 1.3X book for my shares, I may try to hold out :D

 

Anyways, I imagine I'll be able to get back into FFH cheaper than what I sold it for to move into ORH.

 

Looking back at the discussion on ORH over the past few weeks, it all makes sense. ORH was an investment that fit in better than the other options mentioned.

 

Thank you Eric for your insight!

Link to comment
Share on other sites

I am looking forward to the conversation I will be having with my new financial advisor who felt (strongly) that I was too overweight in ORH shares. It will be interesting to see what happens to FFH and ORH shares on Monday. I am surprised a little at the price that FFH has offered... $60 is a steal; if ORH was a stand alone company and put itself up to be aquired it would fetch a much higher multiple. I wonder how the market (and the few large institutional holders) will respond. It would not surprise me to see FFH offer a slightly higher amount (although I do not expect it). 

Link to comment
Share on other sites

Cheers guys.

 

Bottom up to those of us who switched out a bit of FFH to ORH at the right timing as well!

 

Ben

I always think Im lucky when i do that but Ive been lucky for a long time now ;D

After this, Im going to sit in cash (and a bubble bath) for a while

Link to comment
Share on other sites

I'm not sure I'm a fan of Fairfax issuing shares at these prices...growing pains I guess.  Perhaps more good would have been done if the company was allowed to continue buying back shares but we'll never know. 

 

Well, I guess that they have already someone in mind to issue their new shares. When you buy something for cash, the intrinsic value of what you give is obvious. When you have to issue your own stock, it's not that clear. I'll surely take a look at the price. I guess we will know it fairly soon.

 

That being said, I'm happy that their not in a acquizition mood at the expense of our balance sheet.

 

Cheers!

Link to comment
Share on other sites

"I don't understand why they didn't just offer a specific amount of shares of Fairfax, fixed to Odyssey's price today.  That would make the transaction tax-neutral and they wouldn't incur all the investment bank costs to issue new FFH equity to buy ORH with cash. "

 

That is a big puzzle isn't? Remember this little "error" on the 13-F (probably related to TIG Insurance Company direct ownership of ORH)? I have a feeling that they are doing this partly due to their structure.

 

At December 31, 2008 their ownership of Odyssey Re looked as such:

 

"Fairfax owns 70.4% of our outstanding common shares, directly (0.3%) and through its subsidiaries: TIG Insurance Group (41.5%), TIG Insurance Company (7.8%), ORH Holdings Inc. (10.3%), Fairfax Inc. (2.3%) and United States Fire Insurance Company (8.2%)."

 

TIG Insurance Company and United States Fire Insurance Company (Crum & Forster) are really stand alone companies, but 100% owned by Fairfax. They are also subject to independent regulatory insurance supervision. To continue holding a stake in Odyssey Re as a private division of Fairfax or an equity interest for accounting purposes if you will is probably not the best. It earns income, but there is no public market to sell the stake. Regulators would likely drop the carrying value to reflect that, impacting the capital surplus of these insurance firms. And, to receive Fairfax shares in return is probably not acceptable. Pieces of yourself?

 

Here is what happened at Crum & Forster when Northbridge was acquired by Fairfax:

 

"On December 30, 2008, the Company purchased an 8.2% interest in Odyssey common shares, from TIG Insurance Group, Inc. (“TIG”), a Fairfax affiliate, for $246,066. As consideration for its investment in Odyssey, the Company released its Fairfax Inc. note (discussed below) of equal fair value.

 

On December 23, 2008, the Company sold its 15.7% interest in Northbridge to nSpire Re Limited (“nSpire”), a Fairfax affiliate, for $248,066 and received a Fairfax Inc. note held by nSpire of equal value. Since Northbridge was accounted for at fair value, no gain or loss was recorded on the sale."

 

They will have once again to give something to Crum & Forster and this time around to TIG Insurance Company as well in return for their Odyssey Re shares. Together, that is over 9.6 million shares of ORH or over $575 million at $60 a share. That is not even factoring in ORH Holdings Inc. which is 97.5% owned by TIG Insurance Company and only holds ORH shares. Another 6.2 million shares of ORH or over $370 million.

 

With public ownership of ORH at just over 16 million shares or over $960 million, it makes a heck of a sum to pay all these entities in cash: over $1.9 billion.

 

This whole stuff looks silly upon consolidation of Fairfax balance sheet, but real cash payments have to be made to these various players to complete the acquisition. That may help explain why they want to raise something like $1 billion in common shares instead of offering a swap to public shareholders of ORH.

 

Once it is all completed, I think that Fairfax will look a lot simpler and it may even get a ratings upgrade. I suspect that it may also give them more flexibility to invest a greater portion of their portfolios in equities which will improve returns to long term holders of Fairfax. Equity dilution should also be minimal, since they are receiving from public ORH shareholders about as much as they are giving by issuing these new FFH shares.

 

I may be completely off the tracks too.  :-[  Prospectus on the shares issue and coming 10-Q of Crum & Forster should help provide the real answer.

 

Cardboard

 

Link to comment
Share on other sites

I do not like the price offered. It's a steal at 60. My capital will now be moved to a watered down 15% from 20%, with no real adjustment in value to compensate.  And, with the issuance of FFH shares, the intrinsic value of my portfolio as a whole declines. While I do reasonably well immediately, I am worse off long-term.  I will vote against this transaction. I would have expected better from Fairfax; this seems a little bit of a cheap shot to me.

 

If 60 is the price which works for the vast majority, which I would hope it doesn't, why not finance it with some cash and even some of that debt just issued? they have enough to go around, especially with the prospective dividend from ORH at year's end that they can control with 100% ownership.

 

Viking, an important rule of financial success: don't take advice from intermediaries, no matter what titles they hold. It does your pocketbook no good to lay responsibility with others, so don't give yourself the opportunity to do so. I have read your posts with interest. You are much more capable of than the vast majority of professionals. And I know this 'cause I'm one of them.

Link to comment
Share on other sites

I'd be interested in feedback regarding:

 

a) the timing of the announcement

            - after market close on friday of a long weekend?

            - earlier in "the process" than was the case with NB (i.e. ORH committee just being formed)

 

->  Was there possibility of a leak in news that made them speed things up?

 

b) the price of $60

 

->  Note that there are ~600K shares in Feb '10 options at strike prices of $60 and $65 that were purchased pretty cheaply recently ... I wonder who those holders are ... as would suspect they would be HIGHLY motivated to secure a higher price (as NB secured after their own valuation team got into action)

 

 

Anyone one have some good long-weekend conspiracy thoughts?

 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share




×
×
  • Create New...