Fairfax stock positions

[petec]

This board makes me smile. 

 

COBF when Prem bought at $6.50: oh FFS. Why can’t he just pay up for quality growth like everyone else?

 

COBF when Prem offers $14.45 to minorities: Stop! Thief! He’s stealing the company! 

 

7x future earnings is a perfectly reasonable multiple for a ship leasing company, especially when that multiple might reflect peak earnings (it’s quite possible when contracts roll in 4/5 years they’ll roll onto similar or lower rates, and it’s quite likely the cost of capital rises). ATCO is basically a specialist bank: it applies leverage to a narrow spread between the cost at which it sources and the price at which it supplies capital. It just isn’t worth a high P/E.

 

The reason ATCO is going to be worth more than $14.45 in the future is because Sokol will allocate capital brilliantly, but capital allocation isn’t and shouldn’t be capitalized before it happens. Asking buyers to pay for it up front is nuts. (That’s actually why I liked it - I felt the value would compound nicely for years without it ever getting too expensive.)

 

So, although ATCO is 7% of my portfolio and I’d hoped to own it for 20 years, I don’t think this is a crazy cheap price for the current business and I won’t feel cheated if my minority peers vote to sell. 

 

Genuine question, SJ: did you think ATCO was cheap enough to own at $11 a few weeks ago? And if you didn’t, why do you think Prem buying it at $14.45 (but only if the sellers approve) proves that he can’t be trusted?

[glider3834]

I think for Fairfax there is strategic rationale here that Atlas with ONE  as a co-shareholder raises the value of Atlas

 

- ONE is largest customer 24% of vessels under lease - so this cements that customer relationship 

 

- logical for ONE to do more future charters via Atlas in which it has co-ownership - growth opportunity

 

- ONE made 16.7 bil in 2021 - potentially provides atlas with deep pocketed partner if they want to go on acquisition path 

 

 

Still unclear what % ONE or other partners want to buy so offer vague here??

 

[Saluki]

3 hours ago, petec said:

So, although ATCO is 7% of my portfolio and I’d hoped to own it for 20 years, I don’t think this is a crazy cheap price for the current business and I won’t feel cheated if my minority peers vote to sell. 

 

Genuine question, SJ: did you think ATCO was cheap enough to own at $11 a few weeks ago? And if you didn’t, why do you think Prem buying it at $14.45 (but only if the sellers approve) proves that he can’t be trusted?

 

I too had hoped to own it for a long time. I do own FFH too, so I'm not so broken up about it. With the new builds that they have under contract (locked in pre-inflation at 30% below what other people are buying ships for now), which they have locked in leases for, this looked like it had a really bright future.  Sokol and Chen cleaned up the balance sheet, put the revolver finance system in place, kept growing the top line, it looked like the best in show among shipping companies. 

 

I do think $11 was too cheap for this.  The only reason I haven't added recently is that I have a lot already, and I saw cheaper stuff out there that I like more. I have owned it since 2018 and bought more on the dips. It was nice getting a decent sized dividend while watching the business get better and being able to add along the way because the market didn't agree with me. 

 

This kinda reminds me of the Dell going private deal.  There, however, Southeastern was a big shareholder who opposed the deal. Because it's a mutual fund, they couldn't hold non-public companies and weren't going to be able to participate the way FFH is with this one, and Southeastern (Mason Hawkins) was pushing for a better deal from Dell or other bidders.  There won't be other bidders here because the bidders own almost 70% of the float, and I suspect most people owning it don't have diamond hands and may sell on the news. The buyers will be arbs who are buying because they want to approve the deal. If it is approved, I hope it happens after January 1 so I can put off the taxes. 

 

[jbwent63]

When all the regulatory filings come out, it will be interesting to see if an independant valuator provided an opinion on the transaction from the minority shareholders' perspective. That's a report I would like to read.

 

Yes, its opportunistic, but is it really? If the stock is languishing in the $11 range, and has been for some time, isnt a >$14 offer a win for the minority shareholders? There's thousands of other options to invest your money, and those of us who own FFH hope you decide to stay as indirect owners of ATCO.

[StubbleJumper]

4 hours ago, petec said:

Genuine question, SJ: did you think ATCO was cheap enough to own at $11 a few weeks ago? And if you didn’t, why do you think Prem buying it at $14.45 (but only if the sellers approve) proves that he can’t be trusted?

 

Yes.  It was easily cheap enough to own at $11 which is why I hold a small position.  I hold a much, much larger position in FFH, so I will certainly be a net beneficiary of FFH's opportunism with ATCO.

 

Just to be clear, I don't think that I said that Prem cannot be trusted.  Quite to the contrary.  As I have suggested on multiple occasions over the years, he can obviously be trusted to look after his own financial interests.  If investors choose to get involved with any of the companies that are a large position for FFH, they would be well advised to ensure that their interests are well-aligned with Prem's.  "Fair and Friendly" might have been the objective underlying the name "Fairfax" at the company's birth, but it is not the hallmark of management over the past couple of decades.

 

Is the next "Fair and Friendly" transaction going to be taking Fairfax India private at US$14?

 

4 hours ago, petec said:

COBF when Prem bought at $6.50: oh FFS. Why can’t he just pay up for quality growth like everyone else?

 

COBF when Prem offers $14.45 to minorities: Stop! Thief! He’s stealing the company! 

 

I think you have slightly mischaracterised the discussions that occurred when FFH first invested in Seaspan.  My recollection was that there was considerable enthusiasm for FFH having taken a position in Seaspan, but after a few increases in the exposure to Seaspan (shares, notes and warrants), a few of us held the view that the Seaspan position might be butting up against the ceiling of an appropriate position size for FFH.  There is a big difference between characterising something as a crappy investment vs acknowledging that there is an appropriate maximum position size for all investments.

 

 

SJ

[petec]

1 hour ago, Saluki said:

Sokol and Chen cleaned up the balance sheet, put the revolver finance system in place, kept growing the top line, it looked like the best in show among shipping companies. 

 

This is my take too, but with two caveats: they also issued a TON of shares, which has really impaired EPS growth, and while it is probably the best-managed shipping company in the long run, the fact is that the massive spike in short term rates, which ATCO chose not to capture, has completely recapitalised their previously crippled competitors. I take that as a significant negative.

[Xerxes]

Part of the sting maybe that there is no control premium either, since they already have control !

 

As a minority, an Atlas buyback would have been preferable, but the big shareholders already have control so the natural next step is buy the whole thing.  
 

and I agree with @bearprowler6that samething will happen with Stelco. But Stelco was one step behind Atlas in term relative concentration of major shareholders. So first the many small and big tender offers and then the remaining major shareholders will privatized it. 

[Saluki]

11 minutes ago, petec said:

 

This is my take too, but with two caveats: they also issued a TON of shares, which has really impaired EPS growth, and while it is probably the best-managed shipping company in the long run, the fact is that the massive spike in short term rates, which ATCO chose not to capture, has completely recapitalised their previously crippled competitors. I take that as a significant negative.

 

Good point.  Too much many ships built during the boom more than a decade ago and very bad rates for a long time after scared away a lot of future investment/capex in this sector.  Another year or two of bad rates and more of the weak hands would've been shaken out. But IMO2020 didn't cause a lot of scrapping. Then the pandemic disrupted the sector  at first but built up demand sent rates for everything (containers, drybulk, VLCC, product tankers) on a tear. I think it saved a lot of companies that no bank or hedge fund would be interested in.  Part of the appeal of a consolidating industry is the presence of a few good capital allocators (Sokol) and access to a lot of cash (Prem). 

[Crip1]

This is not intended to start an argument, rather, it's intended to better understand. A few folks have indicated that the offer for ATCO was low and, accordingly, unfair to minority shareholders. The question then is "What should have Fairfax done had they wanted to purchase ATCO? Offer $15? $16? $20? Obviously, Fairfax owes it to their shareholders to acquire businesses at the most attractive price possible so if indeed the offer is a low-ball, that's what they really should be doing for their shareholder base, IMHO. Thoughts related to this are welcome.

 

-Crip

 

 

[lessthaniv]

49 minutes ago, Crip1 said:

This is not intended to start an argument, rather, it's intended to better understand. A few folks have indicated that the offer for ATCO was low and, accordingly, unfair to minority shareholders. The question then is "What should have Fairfax done had they wanted to purchase ATCO? Offer $15? $16? $20? Obviously, Fairfax owes it to their shareholders to acquire businesses at the most attractive price possible so if indeed the offer is a low-ball, that's what they really should be doing for their shareholder base, IMHO. Thoughts related to this are welcome.

 

-Crip

 

 

 

I agree. 

 

It's the majority of the minority that will ultimately decide if that pricing makes sense and whether the deal is consumated. With ~68% owned by the consortium, that leaves ~32% for the minority so about ~16% in favour will push it through. I suspect the board will follow up in due course with an independant valuation. Prices will be compared, the board will provide an opinion and the consortium may or may not sweeten the offer. Regardless, just cast your votes when the time comes to represent your individual position and we'll all live with the outcome knowing the majority decides. That's business. Nothing "unfair" about it. The outcome is entirely in the hands of the minority shareholders. 

 

 

 

 

 

 

 

[lessthaniv]

9 hours ago, Xerxes said:

"As a minority, an Atlas buyback would have been preferable, but the big shareholders already have control so the natural next step is buy the whole thing. "

 

I don't follow this logic?

 

1.  The proposed takedown is money coming from the Consortium to the minority shareholders. 

2. Atlas buyback is money coming from Atlas to buyback stock off the open market. 

 

How is this comparable? 

[Parsad]

The one thing no one has mentioned in this is that from a Fairfax investor perspective, this is a real win-win if the transaction is approved and consummated.  Why?

 

- Fairfax gets a great business with great operators at a fair price.

- Fairfax solidifies the relationship even further with Sokol and Chen!

 

Could there be two better investor/operators we could have added to the Fairfax team than David Sokol and Bing Chen?  Fairfax shareholders always bitch and complain about the quality of acquisitions.  Sokol's got quite the history on building and finding quality businesses. 

 

A few years ago David Sokol was Buffett's heir apparent.  Now he's working for Fairfax.  David brings on Bing Chen who proves to be a savvy operator and leader.  Now Bing works for Fairfax. 

 

As a Fairfax shareholder, I'll be quite happy if these two guys are working for us, not just partnered with us.

 

Cheers!

[Xerxes]

26 minutes ago, lessthaniv said:

 

I don't follow this logic?

 

1.  The proposed takedown is money coming from the Consortium to the minority shareholders. 

2. Atlas buyback is money coming from Atlas to buyback stock off the open market. 

 

How is this comparable? 

I am not comparing them just saying with the level of concentration they had why waste Atlas resources for a buyback, which most likely me as a minority would not have tendered into the buybacks anyways. Also it is not like Atlas had a Stelco like cash position vs its size. 
 

A takeover makes sense (given their control) and also allows them to re-jig their position sizing. We don’t know if the consortium members are pro-rataing their position size or doing something differently.  
 

A buyback would have equally increased their respective positions … but to what end. They already have control.
 

I realize I am not explaining well.  

[Xerxes]

22 minutes ago, Parsad said:

The one thing no one has mentioned in this is that from a Fairfax investor perspective, this is a real win-win if the transaction is approved and consummated.  Why?

 

- Fairfax gets a great business with great operators at a fair price.

- Fairfax solidifies the relationship even further with Sokol and Chen!

 

Could there be two better investor/operators we could have added to the Fairfax team than David Sokol and Bing Chen?  Fairfax shareholders always bitch and complain about the quality of acquisitions.  Sokol's got quite the history on building and finding quality businesses. 

 

A few years ago David Sokol was Buffett's heir apparent.  Now he's working for Fairfax.  David brings on Bing Chen who proves to be a savvy operator and leader.  Now Bing works for Fairfax. 

 

As a Fairfax shareholder, I'll be quite happy if these two guys are working for us, not just partnered with us.

 

Cheers!

I agree, And hopefully FFH stock price dipping because of the purchase (if it happens) provides additional opportunities. 

[lessthaniv]

1 hour ago, Parsad said:

The one thing no one has mentioned in this is that from a Fairfax investor perspective, this is a real win-win if the transaction is approved and consummated.  Why?

 

- Fairfax gets a great business with great operators at a fair price.

- Fairfax solidifies the relationship even further with Sokol and Chen!

 

Could there be two better investor/operators we could have added to the Fairfax team than David Sokol and Bing Chen?  Fairfax shareholders always bitch and complain about the quality of acquisitions.  Sokol's got quite the history on building and finding quality businesses. 

 

A few years ago David Sokol was Buffett's heir apparent.  Now he's working for Fairfax.  David brings on Bing Chen who proves to be a savvy operator and leader.  Now Bing works for Fairfax. 

 

As a Fairfax shareholder, I'll be quite happy if these two guys are working for us, not just partnered with us.

 

Cheers!

 

Yes and I wonder if Sokol will perhaps move into an bigger role over time.  Also, on Dec 31/2021 ATCO closed $14.18. The annual report shows carrying value at $922m vs. fair value at $1,286m. Depending if the deal is completed and at what price .. the fair value would be north of this. Wondering if this transaction could result in a mark up in the carrying value? Not too sure but if any accountants know - please share. Might be another positive for Fairfax's reported book value. 

[StubbleJumper]

4 hours ago, Crip1 said:

This is not intended to start an argument, rather, it's intended to better understand. A few folks have indicated that the offer for ATCO was low and, accordingly, unfair to minority shareholders. The question then is "What should have Fairfax done had they wanted to purchase ATCO? Offer $15? $16? $20? Obviously, Fairfax owes it to their shareholders to acquire businesses at the most attractive price possible so if indeed the offer is a low-ball, that's what they really should be doing for their shareholder base, IMHO. Thoughts related to this are welcome.

 

-Crip

 

 

 

The offer *is* low and if it had been tabled any time before April it would have been laughed off as completely ridiculous.  The question is not what FFH should instead offer, as clearly they can offer as much or as little as they like.  The question is whether the company should describe itself as "Fair and Friendly Acquisitions (Fairfax)" when they wait for a broad market correction to offer an amount that would have been considered ridiculous four months ago.  They themselves are the ones who made the assertion that their business would be conducted under the principle of "fairness."  You can judge for yourself how well they have walked the talk.

 

 

SJ

[lessthaniv]

46 minutes ago, StubbleJumper said:

 

The offer *is* low and if it had been tabled any time before April it would have been laughed off as completely ridiculous.  The question is not what FFH should instead offer, as clearly they can offer as much or as little as they like.  The question is whether the company should describe itself as "Fair and Friendly Acquisitions (Fairfax)" when they wait for a broad market correction to offer an amount that would have been considered ridiculous four months ago.  They themselves are the ones who made the assertion that their business would be conducted under the principle of "fairness."  You can judge for yourself how well they have walked the talk.

 

 

SJ

They are simply offering a price they are willing to pay to acquire the outstanding shares.  I’m sure most of us have placed a low ball bid on the shares of a company we like at some point.
 

Based on their condition, it’s up to the majority of the minority to ultimately make the decision, not Fairfax nor the Consortium. That’s what makes it fair. The sellers decide if they like the price.   
 

If you don't like the price, just vote no with your shares. 

 

 

 

[cwericb]

Thought some of us learned after the SFK Pulp/Fibrek deal that if you acquire stock in companies that FFH also owns, always be prepared for an opportunistic takeover by Fairfax.

 

Also: The “fair” part of the “fair and friendly” motto only refers to what is in Fairfax’s best interests.

 

Oh, and regarding Prem’s honesty and motives? One only has to look at what the Quebec judge said about him when Fairfax was sued over the Fibrek deal. Or, read the trial transcripts and then make up you own mind.

 

Bottom line: Avoid holding shares in any company in which Fairfax also holds shares. Gotta go now and re-evaluate my Stelco shares.

[bearprowler6]

18 minutes ago, cwericb said:

Thought some of us learned after the SFK Pulp/Fibrek deal that if you acquire stock in companies that FFH also owns, always be prepared for an opportunistic takeover by Fairfax.

 

Also: The “fair” part of the “fair and friendly” motto only refers to what is in Fairfax’s best interests.

 

Oh, and regarding Prem’s honesty and motives? One only has to look at what the Quebec judge said about him when Fairfax was sued over the Fibrek deal. Or, read the trial transcripts and then make up you own mind.

 

Bottom line: Avoid holding shares in any company in which Fairfax also holds shares. Gotta go now and re-evaluate my Stelco shares.

Well said @cwericb! 

 

The attached article should be helpful for those wanting a quick refresher on the Fibrek/Watsa saga:

 

https://financialpost.com/news/fp-street/watsas-mindboggling-reasoning-in-takeover-prompts-court-award

 

I lost faith in Prem's approach to business a long time ago and reduced my investment in Fairfax accordingly. I have been much better for it! We all have our breaking points. Mine just came sooner then others however I firmly believe that everyone will get there eventually. It just takes a little longer for some. For those investors still trusting in Fairfax/Prem it may be worthwhile remembering the old saying.....when someone shows you who they are....believe them the first time. 

 

Edited August 6, 2022 by bearprowler6

[petec]

13 hours ago, StubbleJumper said:

 

The offer *is* low and if it had been tabled any time before April it would have been laughed off as completely ridiculous.  The question is not what FFH should instead offer, as clearly they can offer as much or as little as they like.  The question is whether the company should describe itself as "Fair and Friendly Acquisitions (Fairfax)" when they wait for a broad market correction to offer an amount that would have been considered ridiculous four months ago.  They themselves are the ones who made the assertion that their business would be conducted under the principle of "fairness."  You can judge for yourself how well they have walked the talk.

 

 

SJ

I seldom disagree with you strongly SJ but I do on this. They’ve literally given the minorities the choice. Entirely reasonable. 

[petec]

17 hours ago, Parsad said:

The one thing no one has mentioned in this is that from a Fairfax investor perspective, this is a real win-win if the transaction is approved and consummated.  Why?

 

- Fairfax gets a great business with great operators at a fair price.

- Fairfax solidifies the relationship even further with Sokol and Chen!

 

Could there be two better investor/operators we could have added to the Fairfax team than David Sokol and Bing Chen?  Fairfax shareholders always bitch and complain about the quality of acquisitions.  Sokol's got quite the history on building and finding quality businesses. 

 

A few years ago David Sokol was Buffett's heir apparent.  Now he's working for Fairfax.  David brings on Bing Chen who proves to be a savvy operator and leader.  Now Bing works for Fairfax. 

 

As a Fairfax shareholder, I'll be quite happy if these two guys are working for us, not just partnered with us.

 

Cheers!

This was more or less my first thought - absolutely agree. Would be very interesting if either of these took over a Barnard-equivalent role for the non-insurance ops one day. 

[Parsad]

Also, based on the Bidco information on the Fairfax 2022 thread, FFH isn't even leading this transaction.  Up to $1.4B is being put up by ONE, $175M by the Washington Family and $30M by Sokol.  Fairfax is not putting anything in.

 

So Prem isn't really screwing over ATCO shareholders as suggested by many on here.  They just remain the largest shareholder after it goes private.  

 

It looks like this deal was led by David and primarily one to strengthen ATCO's partnerships and add another deep pocket partner for the future.

 

Shipping rates will eventually crater in late 2024 or so...maybe Sokol is preparing for that.

 

Cheers!

[nwoodman]

29 minutes ago, Parsad said:

Also, based on the Bidco information on the ATCO board, FFH isn't even leading this transaction.  Up to $1.4B is being put up by ONE, $175M by the Washington Family and $30M by Sokol.  Fairfax is not putting anything in.

 

So Prem isn't really screwing over ATCO shareholders as suggested by many on here.  They just remain the largest shareholder after it goes private.  

 

It looks like this deal was led by David and primarily one to strengthen ATCO's partnerships and add another deep pocket partner for the future.

 

Shipping rates will eventually crater in late 2024 or so...maybe Sokol is preparing for that.

 

Cheers!

Crap, this wouldn't have legs without Fairfax's explicit approval.  If they play the "who couldanode" card it only makes it look worse.

[Parsad]

50 minutes ago, nwoodman said:

Crap, this wouldn't have legs without Fairfax's explicit approval.  If they play the "who couldanode" card it only makes it look worse.

 

I'm sure they did approve.  But the deal was brokered and led by ATCO, not FFH, to improve ATCO's long-term prospects.  Cheers!

[nwoodman]

8 minutes ago, Parsad said:

 

I'm sure they did approve.  But the deal was brokered and led by ATCO, not FFH, to improve ATCO's long-term prospects.  Cheers!

 

It will certainly improve certain player's prospects, I have no doubt about that.  Anyway based on those numbers there certainly is capacity to improve the offer