Auction Buyback Announced

[Crip1]

Well, the $64,000 question is whether or not any folks who tendered, and I tendered roughly 25% of my position, are going to be able to buy back in the US$450 range. 

 

The other question for those who tendered and will have more cash available is whether it be better to plow that cash into Fairfax India?

 

-Crip

[Xerxes]

I have not tendered anything in my RRSP

But to think of it i should have bought additional ones in my TFSA for that sole purpose only, but was somewhat fully vested there and didnt want the tax headache of outside TFSA.

 

I will probably tender my FIH if there is a second opportunity. Nothing to do with the sub-holdings that make up the NAV (which I like), rather the fact that it seems to me the only entity that benefits from FIH's situation is FFH.

 

Anyone wanting to have a generic India exposure are better served buying an India-specific MSCI index. If there is a desire to have a specific exposure that can be bought directly from India's stock exchange, and even the airport at some point will be publicly traded. So what purpose or mission objective is FIH catering too? surely its mission objective is not to create an illiquid stock so that it parent company can benefit indirectly through increase ownership. But that is where we are now, even if that was not the intent.

 

it is worth asking, is there precedence where the fees could now be changed or slightly changed to reward FFH to narrowing the discount. Not in their direct benefit, but then again was the mission objective of FIH to create and an illiquid stock with a perma-discount or have a BIP/BEP like structure, where it would pull that incremental dollar looking for exposure to India to itself.

 

Of course, all that could change, if the model changes to something other than a holding company with a NAV. It is just hard to see the catalyst, which was not the case for FFH proper.

 

 

[StubbleJumper]

I have the opposite problem.  I specifically bought a bit more than 500 shares for the purpose of tendering them.  It looks like I'll make a gain of about 10% on the shares that I tendered, but through proration, I'll end up holding 10% of those shares to the new year.  So, in rough terms, I will be getting all of my original investment back in cash over the next week or 10 days, and then I'll have 50-ish shares for free.  So I will need to decide whether I keep them or dump them.  I'll probably dump them after the Q1 results are released, and hopefully will get US$500 including the divvy which will likely be announced in the next few days....

 

I only wish that I had gone to a greater effort to rearrange my tax-advantaged accounts!

 

 

SJ

[StubbleJumper]

The Globe and Mail published an article this morning about FFH's tender:

 

https://www.theglobeandmail.com/business/article-fairfax-buys-back-1-billion-of-shares-after-cppib-omers-investment/

 

 

SJ

[Viking]

2 hours ago, Xerxes said:

I have not tendered anything in my RRSP

But to think of it i should have bought additional ones in my TFSA for that sole purpose only, but was somewhat fully vested there and didnt want the tax headache of outside TFSA.

 

I will probably tender my FIH if there is a second opportunity. Nothing to do with the sub-holdings that make up the NAV (which I like), rather the fact that it seems to me the only entity that benefits from FIH's situation is FFH.

 

Anyone wanting to have a generic India exposure are better served buying an India-specific MSCI index. If there is a desire to have a specific exposure that can be bought directly from India's stock exchange, and even the airport at some point will be publicly traded. So what purpose or mission objective is FIH catering too? surely its mission objective is not to create an illiquid stock so that it parent company can benefit indirectly through increase ownership. But that is where we are now, even if that was not the intent.

 

it is worth asking, is there precedence where the fees could now be changed or slightly changed to reward FFH to narrowing the discount. Not in their direct benefit, but then again was the mission objective of FIH to create and an illiquid stock with a perma-discount or have a BIP/BEP like structure, where it would pull that incremental dollar looking for exposure to India to itself.

 

Of course, all that could change, if the model changes to something other than a holding company with a NAV. It is just hard to see the catalyst, which was not the case for FFH proper.

 

 

@Xerxes i am not convinced the crazy discount we see with Fairfax India shares today is permanent. Now I have no idea what the catalyst will be to close the discount. Or timing. I do expect Fairfax India to be very aggressive with share buybacks. Regardless, buyers of Fairfax India at under US$12 should be able to earn an acceptable return (10-15% per year moving forward). And if it closes the valuation gap then returns would likely be exceptional (+25%). So i will be happy to re-establish a position in Fairfax India with some of the proceeds from Fairfax from the dutch auction.

Edited December 26, 2021 by Viking

[Crip1]

On 12/26/2021 at 12:39 PM, Viking said:

@Xerxes i am not convinced the crazy discount we see with Fairfax India shares today is permanent. Now I have no idea what the catalyst will be to close the discount. Or timing. I do expect Fairfax India to be very aggressive with share buybacks. Regardless, buyers of Fairfax India at under US$12 should be able to earn an acceptable return (10-15% per year moving forward). And if it closes the valuation gap then returns would likely be exceptional (+25%). So i will be happy to re-establish a position in Fairfax India with some of the proceeds from Fairfax from the dutch auction.

I think the catalyst would be performance. If FIH can return 10% on the $20 Book Value, that would be in excess of $4 over two years. $4 on the $12 current price is roughly a 15% annualized return on purchase price. Returning anything more than 10% would amplify the 15%. That’s gonna get the attention of the market.

 

-Crip

[TwoCitiesCapital]

On 12/24/2021 at 1:24 PM, Santayana said:

Really happy to be getting the $500 on the shares I tendered.   What held me back from tendering more is the delay in receiving the cash.    The way Fairfax tends to move in big jumps, it wouldn't shock me if we get a !0% pop and have the shares trading over $500 by the time everything settles.

 

I dunno. This seems to be mimicking exactlywhat FIH did. 

 

FIH tendered for with a high of $15. During the time the tender was in force, shares were between $13-14. After tender completed with fills @ $14.90, share immediately popped to high 14s.  Shortly thereafter they languished and moved back down to $13/share. 

 

I couldn't make sense of it at the time. Why would it pop to $15 AFTER the tender was closed? Why didn't people arbitrage the tender? 

 

We're seeing the same thing here. Fairfax tenders with a high end of $500. Shares remain range bound $450-460 USD. Tender closes and fills at high end of the range. Shares immediately pop AFTER the tender closed. 

 

So now I envision shares might languish back down to $460ish in coming weeks after cash is received from tender. 

 

I couldn't make sense of it before, but I have a working hypothesis now

 

1) Few people are buying shares to arbitrage tender spread. This is likely due to tax implications for large, taxable entities meaning only small, tax advantaged investors participate and they likely already owned the shares. 

 

2) the people who tendered positions immediately begin re-accumulating the shares tendered. They want those shares back. Tendering was tactical.  This puts pressure on the share price upwards driving it to the high end of the range they expect to receive from previously tendered shares. 

 

3) once those positions are reaccumulated, there are no new marginal buyers. So share price languishes back to prior tender equilibrium between buyers and sellers which would be ~$450-460/share

 

Let's see if that happens 

 

 

 

 

 

 

 

 

 

 

 

 

Edited December 28, 2021 by TwoCitiesCapital

[ICUMD]

Definitely a plausible hypothesis...

 

I agree.

 

My take:

 

FIH and FFH are long plays with low relative risk due their discount to book value (0.65 and 0.85) respectively.

 

Unfortunately, the larger market has not 'discovered' the Fairfax franchise in favor of chasing returns in trendy areas like bitcoin, tech, EV 

 

The good news is that ongoing BV discounts will always remain attractive for Prem to go Dutch. A competitive sink for cash vs new investments which may be hard to come by in this market.  With them, there should be periodic reversion closer to BV.

 

Let's see what 2022 brings.

 

 

 

 

 

 

 

 

 

 

 

 

[Thrifty3000]

2 hours ago, TwoCitiesCapital said:

 

I dunno. This seems to be mimicking exactlywhat FIH did. 

 

FIH tendered for with a high of $15. During the time the tender was in force, shares were between $13-14. After tender completed with fills @ $14.90, share immediately popped to high 14s.  Shortly thereafter they languished and moved back down to $13/share. 

 

I couldn't make sense of it at the time. Why would it pop to $15 AFTER the tender was closed? Why didn't people arbitrage the tender? 

 

We're seeing the same thing here. Fairfax tenders with a high end of $500. Shares remain range bound $450-460 USD. Tender closes and fills at high end of the range. Shares immediately pop AFTER the tender closed. 

 

So now I envision shares might languish back down to $460ish in coming weeks after cash is received from tender. 

 

I couldn't make sense of it before, but I have a working hypothesis now

 

1) Few people are buying shares to arbitrage tender spread. This is likely due to tax implications for large, taxable entities meaning only small, tax advantaged investors participate and they likely already owned the shares. 

 

2) the people who tendered positions immediately begin re-accumulating the shares tendered. They want those shares back. Tendering was tactical.  This puts pressure on the share price upwards driving it to the high end of the range they expect to receive from previously tendered shares. 

 

3) once those positions are reaccumulated, there are no new marginal buyers. So share price languishes back to prior tender equilibrium between buyers and sellers which would be ~$450-460/share

 

Let's see if that happens 

 

 

 

 

 

 

 

 

 

 

 

 

Man, I hope it does languish at $450. And, I hope FFH buys back 2 million shares a year at that price for the next 12 years. And, after that I hope they start paying out a $450 per share annual dividend on the last remaining 1 million shares (in perpetuity). Haha. 

[glider3834]

2 hours ago, TwoCitiesCapital said:

 

I dunno. This seems to be mimicking exactlywhat FIH did. 

 

FIH tendered for with a high of $15. During the time the tender was in force, shares were between $13-14. After tender completed with fills @ $14.90, share immediately popped to high 14s.  Shortly thereafter they languished and moved back down to $13/share. 

 

I couldn't make sense of it at the time. Why would it pop to $15 AFTER the tender was closed? Why didn't people arbitrage the tender? 

 

We're seeing the same thing here. Fairfax tenders with a high end of $500. Shares remain range bound $450-460 USD. Tender closes and fills at high end of the range. Shares immediately pop AFTER the tender closed. 

 

So now I envision shares might languish back down to $460ish in coming weeks after cash is received from tender. 

 

I couldn't make sense of it before, but I have a working hypothesis now

 

1) Few people are buying shares to arbitrage tender spread. This is likely due to tax implications for large, taxable entities meaning only small, tax advantaged investors participate and they likely already owned the shares. 

 

2) the people who tendered positions immediately begin re-accumulating the shares tendered. They want those shares back. Tendering was tactical.  This puts pressure on the share price upwards driving it to the high end of the range they expect to receive from previously tendered shares. 

 

3) once those positions are reaccumulated, there are no new marginal buyers. So share price languishes back to prior tender equilibrium between buyers and sellers which would be ~$450-460/share

 

Let's see if that happens 

 

 

 

 

 

 

 

 

 

 

 

 

Yes could be true - also I think possibly there was an expectation that the SIB would be undersubscribed due to tax implications, and so the fact it was modestly oversubscribed took the market by surprise.

 

Also maybe a signalling aspect that Fairfax is prepared to repurchase shares at a premium to current share price, indicating they see undervaluation. 

 

Would be great to see Fairfax have another go at this in 2022 if this discount is still there. Those swaps are looking good too.

[Xerxes]

On 12/26/2021 at 11:56 AM, StubbleJumper said:

I have the opposite problem.  I specifically bought a bit more than 500 shares for the purpose of tendering them.  It looks like I'll make a gain of about 10% on the shares that I tendered, but through proration, I'll end up holding 10% of those shares to the new year.  So, in rough terms, I will be getting all of my original investment back in cash over the next week or 10 days, and then I'll have 50-ish shares for free.  So I will need to decide whether I keep them or dump them.  I'll probably dump them after the Q1 results are released, and hopefully will get US$500 including the divvy which will likely be announced in the next few days....

 

I only wish that I had gone to a greater effort to rearrange my tax-advantaged accounts!

 

 

SJ

 

well done sir, you and other helped Prem vacuum up 2 million shares.

And are componsated acoordingly.

Happy Holidays

 

---------------------------

23,017,184 outstanding shares (pre-Allied World purchase)

26,100,817 outstanding shares (post-Allied World purchase)

 

24,986,170 common + 1,548,000 multiple voting shares => As of 12/24/2021 press release

 

Unsure, if the outstanding share # from 2016 and 2017 include the multiple voting shares or not. I believe they are. Either way, suffice to say that a good chunk of stock dilution used to fund the Allied World purchase has been bought back below where it was issued. I believe those were issued at above BV and 2 million of those (2/3 of the lot) were bought back at 0.8-0.9 or so.

 

Hell, maybe Bloomstran can write a chapter, how FFH strategically issued overvalued stock at close to BV and bought them off below BV.

[Matthew Lembo]

think this was discussed a little earlier in the thread or another thread...I could not find the quote, but was hoping I could solicit some help on the share count post the SIB.  Per the press release "As of November 17, 2021, the date the Offer was announced, there were 26,986,170 Shares and 1,548,000 multiple voting shares issued and outstanding. After giving effect to the Offer, Fairfax expects to have 24,986,170 Shares and 1,548,000 multiple voting shares issued and outstanding."

 

I am prolly reading this incorrectly, but this would imply to me 26,534,170 (25mm + 1.5mm) shares outstanding post SIB. 

 

What I cannot reconcile is that as of the Q3 2021 financial reporting p.19 there were 26.7mm (excluding the 0.8mm multiple and subordinate voting shares held through ownership interest in shareholder) shares outstanding. 

 

The only thing I could think of is that the 25.0mm Shares are inclusive of the 1.5mm multiple voting shares but this is not how the share count is presented in the quarterly financial reporting. But that is inconsistent with the quarterly reporting and still would not tie out. 

 

Said differently, I would have expected in round numbers that after the 2mm shares purchased thru the SIB there would be 23.9mm shares outstanding. See simple math below: 

 

Shares Outstanding as of 9/30/2021 - 25.1mm

Multiple voting shares issued and outstanding - 1.5mm Total - 26.7mm Less: Interest in Multiple and Subordinate Voting Shares held through Ownership interest in shareholder - 0.8mm Total Shares Outstanding as of 9/30/20/21 = 25.9

Less: 2.0mm shares repurchased thru SIB

Post SIB Net Shares Outstanding of 23.9mm

 

Instead per the press release it seems there will be 26.5mm shares outstanding which is hardly a change from 9/30/21 and seems odd and would imply that Fairfax issued shares b/w 9/30 and the SIB which can not be accurate.

 

Apologize as I am sure this is an obvious miss on my part. 

 

 

 

 

[StubbleJumper]

12 hours ago, Xerxes said:

Hell, maybe Bloomstran can write a chapter, how FFH strategically issued overvalued stock at close to BV and bought them off below BV.

 

If he writes that chapter, he should note that it's not the first time that FFH issued at a high price and repurchased at a ridiculous price.  

 

 

SJ

[glider3834]

2 hours ago, StubbleJumper said:

 

If he writes that chapter, he should note that it's not the first time that FFH issued at a high price and repurchased at a ridiculous price.  

 

 

SJ

+1

[Santayana]

18 hours ago, TwoCitiesCapital said:

 

I dunno. This seems to be mimicking exactlywhat FIH did. 

 

FIH tendered for with a high of $15. During the time the tender was in force, shares were between $13-14. After tender completed with fills @ $14.90, share immediately popped to high 14s.  Shortly thereafter they languished and moved back down to $13/share. 

 

I couldn't make sense of it at the time. Why would it pop to $15 AFTER the tender was closed? Why didn't people arbitrage the tender? 

 

We're seeing the same thing here. Fairfax tenders with a high end of $500. Shares remain range bound $450-460 USD. Tender closes and fills at high end of the range. Shares immediately pop AFTER the tender closed. 

 

So now I envision shares might languish back down to $460ish in coming weeks after cash is received from tender. 

 

I couldn't make sense of it before, but I have a working hypothesis now

 

1) Few people are buying shares to arbitrage tender spread. This is likely due to tax implications for large, taxable entities meaning only small, tax advantaged investors participate and they likely already owned the shares. 

 

2) the people who tendered positions immediately begin re-accumulating the shares tendered. They want those shares back. Tendering was tactical.  This puts pressure on the share price upwards driving it to the high end of the range they expect to receive from previously tendered shares. 

 

3) once those positions are reaccumulated, there are no new marginal buyers. So share price languishes back to prior tender equilibrium between buyers and sellers which would be ~$450-460/share

 

Let's see if that happens 

 

 

 

 

 

 

 

 

 

 

 

 

If that happens, I think it will be a very short lived trip back down to that range as Q4 earnings are likely going to give a substantial boost to book value.

[TwoCitiesCapital]

4 hours ago, Santayana said:

If that happens, I think it will be a very short lived trip back down to that range as Q4 earnings are likely going to give a substantial boost to book value.

 

It's possible, but none of that has mattered to FIH which has fallen even further to $12 in recent weeks. 

 

FIH has also had great quarters, growing BV, and near-term catalysts of the Anchorage IPO. Still trades at a 35+% discount to it's NAV post a recent tender at $14.90. 

 

If book value and good quarters mattered to the market, Fairfax wouldn't have traded at $400 as recently as October. All that matters in the short term is sentiment and incremental flows. I don't see what would cause immediate sentiment to change (quarterly results have been strong for a bit now) nor do I see anything meaningfully improving flows once those who tendered rebuild their positions. 

 

This is all purely speculative, but I'm just saying don't be surprised if in 3 weeks time it's back to $460 USD. 

 

 

[StubbleJumper]

51 minutes ago, TwoCitiesCapital said:

If book value and good quarters mattered to the market, Fairfax wouldn't have traded at $400 as recently as October. All that matters in the short term is sentiment and incremental flows. I don't see what would cause immediate sentiment to change (quarterly results have been strong for a bit now) nor do I see anything meaningfully improving flows once those who tendered rebuild their positions. 

 

Entirely possible.  That's the market.

 

At this point, I would suggest that people pay attention to Prem.  He told us that the share price was bat-shit crazy 18 months ago and then put US$150m of his own money on the table.  Then last fall, he told us that the share price was bat-shit crazy and bought a pile of total return swaps.  Then this fall he told us that the share price was bat-shit crazy and he borrowed a bunch of money sold a piece of Odyssey to finance a tender for a shit-tonne of shares.

 

Is anyone still doubting whether he's serious?

 

 

SJ

Edited December 29, 2021 by StubbleJumper

[Viking]

Well the fat lady is done singing… Now are there any rules of thumb for how many days it will take for the transaction to actually show up in our accounts? 

————

Fairfax Announces Completion of Substantial Issuer Bid

- https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Announces-Completion-of-Substantial-Issuer-Bid/default.aspx

TORONTO, Dec. 29, 2021 (GLOBE NEWSWIRE) -- Fairfax Financial Holdings Limited (“Fairfax” or the “Company”) (TSX: FFH and FFH.U) announces today the completion of its substantial issuer bid initially announced on November 17, 2021 (the “Offer”). Fairfax has taken up and paid for 2,000,000 subordinate voting shares (the “Shares”) at a purchase price of US$500.00 per Share (the “Purchase Price”).

 

…Fairfax has made payment for the Shares validly tendered by delivering the aggregate purchase price to Computershare Investor Services Inc. (the “Depositary”) in accordance with the Offer and applicable law, and payment to tendering shareholders will be effected by the Depositary. Any Shares tendered and not purchased, including Shares invalidly tendered, will be returned to shareholders as soon as practicable by the Depositary.

[glider3834]

2 hours ago, Viking said:

Well the fat lady is done singing… Now are there any rules of thumb for how many days it will take for the transaction to actually show up in our accounts? 

————

Fairfax Announces Completion of Substantial Issuer Bid

- https://www.fairfax.ca/news/press-releases/press-release-details/2021/Fairfax-Announces-Completion-of-Substantial-Issuer-Bid/default.aspx

TORONTO, Dec. 29, 2021 (GLOBE NEWSWIRE) -- Fairfax Financial Holdings Limited (“Fairfax” or the “Company”) (TSX: FFH and FFH.U) announces today the completion of its substantial issuer bid initially announced on November 17, 2021 (the “Offer”). Fairfax has taken up and paid for 2,000,000 subordinate voting shares (the “Shares”) at a purchase price of US$500.00 per Share (the “Purchase Price”).

 

…Fairfax has made payment for the Shares validly tendered by delivering the aggregate purchase price to Computershare Investor Services Inc. (the “Depositary”) in accordance with the Offer and applicable law, and payment to tendering shareholders will be effected by the Depositary. Any Shares tendered and not purchased, including Shares invalidly tendered, will be returned to shareholders as soon as practicable by the Depositary.

I'm not sure viking - maybe you could use Fairfax India buyback payment time as a reference - not sure if Xmas period might slow things down

[matthew2129]

9 hours ago, glider3834 said:

I'm not sure viking - maybe you could use Fairfax India buyback payment time as a reference - not sure if Xmas period might slow things down

How long does it take for $ to hit folks accounts after the FIH tender?

[mcliu]

@Maxwave28 Hi Maxwave28, that is interesting. I think it may have to do with the shares that they've "repurchased" for share-based payment awards but have not "cancelled".

 

From the 2020 Annual Report.

 

So I think, given this, we need to deduct about 1.5 to 1.7 from the actual share count.

 

Fairfax share count:

2015:     22.2

2016:     23.1

2017:     27.8

2018:     27.2

2019:     26.8

2020:    26.2

2021E:   25.7-1.6 (treasury shares) = 24.1

 

[TwoCitiesCapital]

On 12/30/2021 at 7:11 AM, mcliu said:

@Maxwave28 Hi Maxwave28, that is interesting. I think it may have to do with the shares that they've "repurchased" for share-based payment awards but have not "cancelled".

 

From the 2020 Annual Report.

 

So I think, given this, we need to deduct about 1.5 to 1.7 from the actual share count.

 

Fairfax share count:

2015:     22.2

2016:     23.1

2017:     27.8

2018:     27.2

2019:     26.8

2020:    26.2

2021E:   25.7-1.6 (treasury shares) = 24.1

 

 

 

Money hit my Schwab account and today (before IB even!) But the math doesn't come close to making sense. Only had odd lots so all shares were tendered but the cash is only like $225ish/share so not sure what's up - will see if it's corrected post holiday, but anybody on Schwab should watch this like a hawk. 

[KPO]

11 hours ago, TwoCitiesCapital said:

 

 

Money hit my Schwab account and today (before IB even!) But the math doesn't come close to making sense. Only had odd lots so all shares were tendered but the cash is only like $225ish/share so not sure what's up - will see if it's corrected post holiday, but anybody on Schwab should watch this like a hawk. 

I’m seeing something similar with Fidelity.  

[ICUMD]

Probably dividend payment to follow?

[gary17]

39 minutes ago, KPO said:

I’m seeing something similar with Fidelity.  

 

could it be they made statutory deductions on the deemed dividend tax?