Fairfax stock positions

[TwoCitiesCapital]

19 hours ago, ourkid8 said:

 

I bet they unwind the TRS so 1.4M shares @ $344.45   How beautiful would that be with the stock trading at $537.61?  

 

I would hope NOT! They've already received the cash from the upward momentum in share price. TRS are typically cash settled monthly or quarterly. So every month/quarter Fairfax is receiving or paying the performance on the shares in cash. 

 

What benefit would there be to them to close it now unless if you expect the stock to fall in the coming quarters? I'd much rather they hold onto these until AT LEAST the stock trades at the adjusted book value (looking through to the market value of investments carried @ cost). 

 

 

Edited July 28, 2022 by TwoCitiesCapital

[StubbleJumper]

1 hour ago, TwoCitiesCapital said:

What benefit would there be to them to close it now unless if you expect the stock to fall in the coming quarters?

 

The benefit, if there is one, would be risk management for holdco cash.  Hopefully Jen Allen has thought this all through.  But, those TRS do work both ways.  When the stock price rises by US$100, life is grand because the counterparty mails a 9-digit cheque to FFH holdco and we all snigger about how easily that money was made.  But, if the stock price should plunge by US$100, it's the FFH holdco that needs to find the cash to write that 9-digit cheque to the counterparty.

 

When things are going well, this is not a problem at all.  Holdco cash balances are strong at the moment, the stock price is on solid footing at the moment (as you note, it's valued below book right now), and capital requirements of the subs have consisted of opportunistic growth opportunities rather than bolstering due to adverse development.  The issue that might arise is that some event that affects one or more of the subs which requires a capital injection from the holdco could also impact FFH's share price which could simultaneously require writing a large cheque to the counterparty.

 

Presumably Jen Allen has done her homework on holdco cash, credit lines, expected cash outflows and has made a recommendation about whether those TRS impose a meaningful risk of liquidity challenges.

 

 

SJ

Edited July 28, 2022 by StubbleJumper

[TwoCitiesCapital]

6 minutes ago, StubbleJumper said:

 

The benefit, if there is one, would be risk management for holdco cash.  Hopefully Jen Allen has thought this all through.  But, those TRS do work both ways.  When the stock price rises by US$100, life is grand because the counterparty mails a 9-digit cheque to FFH holdco and we all snigger about how easily that money was made.  But, if the stock price should plunge by US$100, it's the FFH holdco that needs to find the cash to write that 9-digit cheque to the counterparty.

 

When things are going well, this is not a problem at all.  Holdco cash balances are strong at the moment, the stock price is on solid footing at the moment (as you note, it's valued below book right now), and capital requirements of the subs have consisted of opportunistic growth opportunities rather than bolstering due to adverse development.  The issue that might arise is that some event that affects one or more of the subs which requires a capital injection from the holdco could also impact FFH's share price which could simultaneously require writing a large cheque to the counterparty.

 

Presumably Jen Allen has done her homework on holdco cash, credit lines, expected cash outflows and has made a recommendation about whether those TRS impose a meaningful risk of liquidity challenges.

 

 

SJ

 

I'd be inclined to agree with you if the stock price were over $1,000/USD and monthly/quarterly swings 2-3x what they are today with limited undervaluation relative to the underlying business. But we're not there yet.  

 

There's risk here for sure - but with current liquidity, profitability, and valuations? I think it's predominantly skewed to the upside. 

[StubbleJumper]

18 minutes ago, TwoCitiesCapital said:

 

I'd be inclined to agree with you if the stock price were over $1,000/USD and monthly/quarterly swings 2-3x what they are today with limited undervaluation relative to the underlying business. But we're not there yet.  

 

 

IMO, valuation is not the right way to think of it.  I tend to handicap the risk in rough terms of a mental frequency table of how often the FFH stock price tends to decline, irrespective of whether it is fully valued.  So, for a 10% price decline, I'm guessing that occurs a couple of times per year for FFH.  For a 20% price decline, I'm guessing that occurs about once every 2 years.  And for a 30% price decline, that might occur about once every 5 years.  And then there are the infrequent black swan events like 9/11, or the KRW hurricanes, or the 2008 stock market plunge , or the 2020 pandemic panic that might push the stock price to drop by 40% or more.  I haven't actually downloaded the stock price data to see whether reality corresponds to my perception of the frequency of these types of drops, but a more industrious fellow could actually do so (and I hope that Jen Allen has actually done so)!

 

So, even at the current stock price, for the 10% decline, FFH needs to write a cheque of ~US$80m to the TRS counter-party, which isn't such a problem, but it should be fully expected a couple of times during a year.  But, moving up the scale, that 30% decline starts to look like a cheque (or a series of cheques) for a quarter-billion dollars.  That begins to get into the range of real money in the context of Prem's preferred holdco cash balance of ~$1b.  It's not a big deal, but it should drive a bit of a thought process by the CFO about whether that preferred cash balance ought to be bumped up a bit, and it should trigger a bit of reflection about how the large revolver plays into this.

 

32 minutes ago, TwoCitiesCapital said:

There's risk here for sure - but with current liquidity, profitability, and valuations? I think it's predominantly skewed to the upside. 

 

Agreed that the risk predominantly skews to the upside.  It's not even close.  But, I do hope that Jen Allen is banging on Prem about risk management a bit more than some of the previous CFOs have done.

 

 

SJ

[glider3834]

Just had a quick look at Eurobank results also released today - they are executing well - 2022 forecasts for loan growth, operating profit & EPS have been revised up - despite the challenging environment in Europe, Greece looks to be doing better with 4% GDP growth - tourism breaking records this year

 

https://www.eurobankholdings.gr/-/media/holding/omilos/grafeio-tupou/etairikes-anakoinoseis/2022/2q-2022/2q2022-results-pr-en.pdf

 

 

 

[Viking]

How are Fairfax's various equity investments doing 1/3 of the way through Q3? My math says they are up about US$620 million = $26/share pre tax. Of the total about $170 million = $7/share is mark to market. Biggest movers:

1.) Resolute =     +$230 million. This sale will close in 1H 2023.

2.) Atlas =           +$127

3.) Blackberry = + $76

4.) Eurobank =   + $48

4.) Stelco =         + $35

Fairfax Equity Holdings July 31 2022.xlsx

[petec]

https://www.fairfax.ca/news/press-releases/press-release-details/2022/Chairman-of-Atlas-Corp.-Fairfax-Financial-Holdings-Limited-and-the-Washington-Family-Partner-With-Ocean-Network-Express-Pte.-Ltd.-To-Jointly-Propose-Acquiring-All-Common-Shares-of-Atlas-Corp.-Not-Controlled-by-Its-Majority-Shareholders-for-14.45-per-/default.aspx

[gary17]

fair & friendly acquisition    lol

[StubbleJumper]

24 minutes ago, gary17 said:

fair & friendly acquisition    lol

 

No, as is typically the case with FFH, it is opportunistic.  Fair and friendly, not so much.

 

 

SJ

[gfp]

25 minutes ago, gary17 said:

fair & friendly acquisition    lol

 

It could be worse -

"The Consortium's proposal further provides that the proposed transaction will be subject to a non-waivable condition requiring approval by holders of a majority of Atlas common shares not owned or controlled by the Consortium, senior management or their respective affiliates."

[Parsad]

2 minutes ago, gfp said:

 

It could be worse -

"The Consortium's proposal further provides that the proposed transaction will be subject to a non-waivable condition requiring approval by holders of a majority of Atlas common shares not owned or controlled by the Consortium, senior management or their respective affiliates."

 

It's just a way to draw attention to ATCO's silly share price.  If they get majority approval, they get a deal, shareholders get liquidity and Fairfax shareholders still benefit through Fairfax shares.  If they don't get it, the stock price stays up closer to $14-15 and they retain the core group of ATCO shareholders while the consortium still controls the company.  It's win-win either way...and relatively fair, as the majority of non-consortium shareholders have to approve.  Cheers!

[StubbleJumper]

7 minutes ago, Parsad said:

 

It's just a way to draw attention to ATCO's silly share price.  If they get majority approval, they get a deal, shareholders get liquidity and Fairfax shareholders still benefit through Fairfax shares.  If they don't get it, the stock price stays up closer to $14-15 and they retain the core group of ATCO shareholders while the consortium still controls the company.  It's win-win either way...and relatively fair, as the majority of non-consortium shareholders have to approve.  Cheers!

 

Holy Christ, Sanj.  What PE multiple based on 2022 earnings do you believe they are offering?  Are you brave enough to simply take earnings from Q1 and run-rate that for the year?  If you are brave enough to do that, it would be $14.45/(4x$0.56)=~7 PE. 

 

This offer is typical FFH horseshit.

 

 

SJ

[bearprowler6]

58 minutes ago, StubbleJumper said:

 

Holy Christ, Sanj.  What PE multiple based on 2022 earnings do you believe they are offering?  Are you brave enough to simply take earnings from Q1 and run-rate that for the year?  If you are brave enough to do that, it would be $14.45/(4x$0.56)=~7 PE. 

 

This offer is typical FFH horseshit.

 

 

SJ

I could not agree more SJ. Sadly however I sense that ATCO is just the beginning as I believe that FFH/Prem will be taking the same approach with Stelco. Simply replace Sokol with Kestenbaum wash, rinse and repeat. 

[vakilkp]

A FFH shareholder would not mind, but an ATCO shareholder would as the price is low.  Do I have it right?  I own both.

[LC]

Agree. A

2 minutes ago, vakilkp said:

A FFH shareholder would not mind, but an ATCO shareholder would as the price is low.  Do I have it right?  I own both.

Yep that is the position I am in. 

It’s a crummy to see Fairfax mgmt screw minority shareholders. 

[valueinvesting101]

7 minutes ago, LC said:

Agree. A

Yep that is the position I am in. 

It’s a crummy to see Fairfax mgmt screw minority shareholders. 

Does this transaction require majority approval among minority shareholders? That seems to be the case here:

proposed transaction will be subject to a non-waivable condition requiring approval by holders of a majority of Atlas common shares not owned or controlled by the Consortium, senior management or their respective affiliates.

If yes, then how is Fairfax management screwing the minority? 

[Xerxes]

Damn Buffett is buying the dip !
 

“Ocean Network Express Holdings, Ltd. is a Japanese container transportation and shipping company jointly owned by the Japanese shipping Lines Nippon Yusen Kaisha, Mitsui O.S.K. Lines, and K Line. Wiki“

[StubbleJumper]

9 minutes ago, valueinvesting101 said:

Does this transaction require majority approval among minority shareholders? That seems to be the case here:

proposed transaction will be subject to a non-waivable condition requiring approval by holders of a majority of Atlas common shares not owned or controlled by the Consortium, senior management or their respective affiliates.

If yes, then how is Fairfax management screwing the minority? 

 

They are screwing the minority of the minority because even if the deal is approved, the deep value guys know very well that the price is not high enough.  Just like what they did when they screwed the deep value guys when they bought back the Odyssey Re minority.  They effectively bought back ORH at book value when anyone with a brain knew it was worth far more.  And now they want to buy ATCO at a PE of perhaps ~7x, when that is obviously too little.

 

Look, if they want to initiate a Jesus-big tender offer then the weak hands can tender away all they like.  FFH did that with its own shares last fall, and the weak hands happily tendered their shares at 0.8x BV.   But it's shitty when the deal is structured such weak hands vote that the deep value guys should be expropriated at a price far lower than fair value.

 

 

SJ

[StubbleJumper]

31 minutes ago, vakilkp said:

A FFH shareholder would not mind, but an ATCO shareholder would as the price is low.  Do I have it right?  I own both.

 

You have that half-right, IMO.  What you should be asking yourself is, "If FFH screwed the minority shareholders in the Odyssey Re transaction, and again in the Fibrek transaction, and once again in the ATCO transaction, what will happen to minority shareholders of FFH if the time ever comes that the Watsa family wants to take FFH private?"

 

 

SJ

[Viking]

My math says the consortium needs to find $1.165 billion to take ATCO private: 252 million shares x .32 x $14.55. 
 

It is clear to me that Mr Market is not buying the ATCO value proposition and has not been for years. Mr market is not going to value ATCO as a finance/lease/capital allocation company. Despite ATCO’s attempts to ‘educate’ investors. ATCO is being valued today as a shipping company.
 

Further, because  of the new builds coming on line the next couple of years it will be nice for ATCO to NOT be in the public markets. Being private will greatly simplify what management at ATCO needs to do moving forward (make money) and not spend a ton of time jumping through hoops required by publicly traded companies. 
 

Do i like the transaction as a Fairfax shareholder? Yes. Although i would like to better understand how much of the $1.165 billion will be coming from Fairfax. This likely means we do not see a big share buyback from Fairfax and if so, that would be disappointing. 

[vakilkp]

8 minutes ago, StubbleJumper said:

 

You have that half-right, IMO.  What you should be asking yourself is, "If FFH screwed the minority shareholders in the Odyssey Re transaction, and again in the Fibrek transaction, and once again in the ATCO transaction, what will happen to minority shareholders of FFH if the time ever comes that the Watsa family wants to take FFH private?"

 

 

SJ

 

Good point, and that day may come.  I also own BAM and have similar concerns expressed about Flatt.  There is a proposed email from an ATCO shareholder in the ATCO thread if anyone wants to join the cause.  As @Viking pointed out, this is good for FFH but maybe not compared to buying back FFH.

[Xerxes]

1 hour ago, StubbleJumper said:

 

You have that half-right, IMO.  What you should be asking yourself is, "If FFH screwed the minority shareholders in the Odyssey Re transaction, and again in the Fibrek transaction, and once again in the ATCO transaction, what will happen to minority shareholders of FFH if the time ever comes that the Watsa family wants to take FFH private?"

 

 

SJ

Funding secured at $420 USD

[Parsad]

3 hours ago, StubbleJumper said:

 

Holy Christ, Sanj.  What PE multiple based on 2022 earnings do you believe they are offering?  Are you brave enough to simply take earnings from Q1 and run-rate that for the year?  If you are brave enough to do that, it would be $14.45/(4x$0.56)=~7 PE. 

 

This offer is typical FFH horseshit.

 

 

SJ

 

Stubble...do you see another offer?  It's like you expect Fairfax to pay full fair value for everything they acquire...you guys do realize they are in the business of making money, not giving it away!

 

If investor's don't like the offer...vote and make sure it fails.  It can't pass unless the majority of non-consortium shareholders vote in favor of the takeover.  But to blame the company making an offer is kind of absurd, isn't it?  Even if the offer isn't what you might like it to be.

 

Cheers!

[Parsad]

1 hour ago, StubbleJumper said:

 

They are screwing the minority of the minority because even if the deal is approved, the deep value guys know very well that the price is not high enough.  Just like what they did when they screwed the deep value guys when they bought back the Odyssey Re minority.  They effectively bought back ORH at book value when anyone with a brain knew it was worth far more.  And now they want to buy ATCO at a PE of perhaps ~7x, when that is obviously too little.

 

Look, if they want to initiate a Jesus-big tender offer then the weak hands can tender away all they like.  FFH did that with its own shares last fall, and the weak hands happily tendered their shares at 0.8x BV.   But it's shitty when the deal is structured such weak hands vote that the deep value guys should be expropriated at a price far lower than fair value.

 

 

SJ

 

Yeah, that would be nicer and more fair to those that don't want to sell and understand the value of the company, but really, in a capitalist market, we're bitching about a company making a capitalist decision?! 

 

I loaded up on the stock over the last year, while some on here were bitching about how it was fairly priced considering the industry and possibly deteriorating shipping rates...now people are complaining that one of the majority shareholders also finds it cheap and makes a takeover offer?  Crazy!  Should I feel bad that I bought shares at $10.25...somehow taking advantage of shareholders who didn't know what the value was?  Cheers!

[Parsad]

2 hours ago, StubbleJumper said:

 

You have that half-right, IMO.  What you should be asking yourself is, "If FFH screwed the minority shareholders in the Odyssey Re transaction, and again in the Fibrek transaction, and once again in the ATCO transaction, what will happen to minority shareholders of FFH if the time ever comes that the Watsa family wants to take FFH private?"

 

 

SJ

 

C'mon SJ!  The Watsa family has controlled the votes since the company started.  Do you really think they would eff over all their friends and family who also own Fairfax stock...including their staff!  They are making the takeover bid for ATCO to benefit FFH shareholders. 

 

Yeah, it isn't fair value to ATCO shareholders...but I don't see anyone else pounding the door to acquire ATCO.  Investors always knew that there was a chance Fairfax would acquire the remaining stock, including possibly buying out the Washington family as well.  Well, instead FFH, the Washington Family and Sokol are buying out the minority shareholders.  

 

If we vote it down.  Then they could up the offer.  Or they could just keep things the same and the stock may drop back down to $11 again.  That's what makes a market!  Cheers!