Auction Buyback Announced

[petec]

8 hours ago, modiva said:

 

This looks similar to margin loan, at least conceptually.  Taking loan against equity.  The difference is that the terms are custom.  The loan amount is very high relative to allowed amounts, and the loan interest is very high relative to the market rate.  Am I missing something?

I’m not sure the rate is high when you consider the buyers seem to be taking equity-like risk.

[petec]

5 hours ago, omagh said:

Imagine a Fairfax with an appropriate capital structure and you'll have a much better company.

Imagine a Berkshire with a Fairfax multiple and you’ll have a much better investment

[glider3834]

30 minutes ago, petec said:

Imagine a Berkshire with a Fairfax multiple and you’ll have a much better investment

We could only wish - I am taking the view Berkshire could be a better investment when WB eventually makes his departure from this world which sounds a bit morbid but it may lessen investor appeal or cause a sell off, meanwhile they have a deep bench of talent.

 

I  wonder if Buffett do a TRS on Berkshire's stock if he could get it at 20% or greater discount to book value? He hasn't shied away from using derivatives in the past. Although given their cash position maybe unnecessary.

 

 

Edited November 18, 2021 by glider3834

[Viking]

5 hours ago, omagh said:

Fairfax's approach is complicated compared to Berkshire's approach which is to use operating earnings to buyback shares.  Imagine a Fairfax with an appropriate capital structure and you'll have a much better company.  Imagine Berkshire having to sell part of National Indemnity or GenRe to allocate capital to buybacks...I'd rather not. 

 

Yet here we are with Fairfax selling OdysseyRe ownership to raise capital.  Both BRK and FFH believe their shares are undervalued, so you can pick your own path.  BRK has bought back $51B in 5 quarters.  Check back to see how much FFH *actually* buys over the next 5 quarters.

 

A poker player has to play with the hand they are dealt. Regardless, Fairfax is not Berkshire and never will be. I love the fact that Fairfax is aggressively and quickly trying to buy back +2 million shares at a VERY attractive price of US$500 or better. And if not enough shares are tendered will they not simply use the remaining proceeds on maxing out the NCIB? 

 

Bottom line, the dutch auction is a great way to take out a bunch of shares quickly. Giddy up!

 

Prem’s communication is not always the best (to say it charitably). However, Teledyne was used as an example for a reason. Prem has been saying for years that share buybacks are a priority. This is just the start. Fairfax’s insurance and investments are positioned the best they have been for the past 10 years. I think Fairfax earnings will improve moving forward. Excess cash is coming  As a result i expect them to stay aggressive with buybacks for the next couple of years especially if shares continue to trade well below BV.
 

And as a shareholder i love the move. Like i said on another post, my guess is BV will be in the US$700 range at 2022YE. That is 12 short months away. Buying back a significant number of shares at $500 or less will be hugely accretive for shareholders.

—————

i have said in the past that growing earnings and higher multiple is a beautiful thing for shareholders. 
 

But there is an even better set up: growing earnings, materially lower share count and higher multiple. When all three happen together a 50-100% gain in the stock price is not unusual over a couple of years. And that is where we are (finally) with Fairfax. 

Edited November 18, 2021 by Viking

[glider3834]

1 minute ago, Viking said:

But there is an even better set up: growing earnings, materially lower share count and higher multiple. When all three happen together a 50-100% gain in the stock price is not unusual over a couple of years. And that is where we are (finally) with Fairfax. 

+1 agree - thats why I prefer Fairfax over Berkshire

 

 

[StubbleJumper]

5 minutes ago, Viking said:

Buying back a significant number of shares at $500 or less will be hugely accretive for shareholders.

 

 

This point should not be lost on shareholders.  We know that this tender offer closes on Dec 23, and by the time FFH actually cuts the cheques to those who tender it will be approximately Dec 31, or if you prefer, the end of Q4.  If the Digit transaction closes in the coming weeks, we *know* that Q4 BV will be US$600+.  If FFH actually succeeds to buy 2 million shares at US$500, it's immediately accretive to continuing shareholders by an amount of US$200m+.  Effectively, Prem is offering to buy the share at about 0.8x book.

 

 

SJ

[Viking]

1 hour ago, StubbleJumper said:

 

 

This point should not be lost on shareholders.  We know that this tender offer closes on Dec 23, and by the time FFH actually cuts the cheques to those who tender it will be approximately Dec 31, or if you prefer, the end of Q4.  If the Digit transaction closes in the coming weeks, we *know* that Q4 BV will be US$600+.  If FFH actually succeeds to buy 2 million shares at US$500, it's immediately accretive to continuing shareholders by an amount of US$200m+.  Effectively, Prem is offering to buy the share at about 0.8x book.

 

 

SJ

And if my guess of 2022YE BV = US$700 is close to being right Prem is offering to buy the shares at 0.7x2022YE BV. 
 

Lots of people feel Fairfax underpaid for ORH buyout in 2009 (there was an information asymmetry as insiders knew ORH was poised to deliver MUCH better earnings post acquisition - which is exactly what happened). In hindsight it appears Fairfax got a steal of a deal when they bought out Odyssey Re.

Prem/Fairfax management has the best visibility of all of us as to what Fairfax is currently worth and what the company will likely earn in the coming years. Perhaps the reason for the current transaction is that they KNOW their shares a dirt cheap and they are unlikely to stay this cheap for long. So what do you do if you are Fairfax? You find $1 billion and do a dutch auction to take the maximum number of shares out as quickly as possible. Simple. Opportunistic. 
 

i can’t wait for people to post in a few years how they were taken to the cleaners by Fairfax  Deja vu?

 

PS: Right now Prem must feel like a fox who has just been let into the henhouse.

Edited November 19, 2021 by Viking

[Gregmal]

6 hours ago, omagh said:

Fairfax's approach is complicated compared to Berkshire's approach which is to use operating earnings to buyback shares.  Imagine a Fairfax with an appropriate capital structure and you'll have a much better company.  Imagine Berkshire having to sell part of National Indemnity or GenRe to allocate capital to buybacks...I'd rather not. 

 

Yet here we are with Fairfax selling OdysseyRe ownership to raise capital.  Both BRK and FFH believe their shares are undervalued, so you can pick your own path.  BRK has bought back $51B in 5 quarters.  Check back to see how much FFH *actually* buys over the next 5 quarters.

This is actually a useful reminder, so thank you for stating it so elegantly. Im in for a quick trade but its important not to lose site of what FFH actually is. 

[glider3834]

1 hour ago, glider3834 said:

+1 agree - thats why I prefer Fairfax over Berkshire

 

 

I should add disclosure - I have small indirect interest in BRK

[glider3834]

36 minutes ago, Viking said:

You find $1 billion and do a dutch auction to take the maximum number of shares out as quickly as possible.

I think this is a bit of a litmus test - if SIB is successful in whole or in part, then I don't think they will stop there - if Fairfax 's shares stay cheap- I think they will continue to find ways & means to buyback more shares (maybe sell a further slice of Odyssey) but it won't be at the expense of their underwriting capital strength& thats why they chose this path from a risk management viewpoint.

 

I am pleased Fairfax are showing here clear intent - they are not simply going to sit & pass up this opportunity.

 

We all talked about this previously on this board - the only path was to sell all or part of a sub to fund a major buyback.

 

Also just on the potential issues with SIB with taxes etc - maybe that is one of the reasons they entered into the TRS due to the practical side of running a SIB - just a thought

 

Edited November 19, 2021 by glider3834

[MMM20]

30 minutes ago, Gregmal said:

This is actually a useful reminder, so thank you for stating it so elegantly. Im in for a quick trade but its important not to lose site of what FFH actually is. 

Maybe FFH buys back 20% of shares outstanding over the next couple years, eh? Sure it’s not $50B but in relative terms it’s about the same magnitude. FFH remains small enough that a puny few billion can move the needle.
 

Remains to be seen whether the operating earnings come through in a big way next year so they can fund it without creative financing. If it turns out that way… well, maybe we’ll live to see 1x bv. 

Edited November 19, 2021 by MMM20

[Gregmal]

8 minutes ago, MMM20 said:

Maybe FFH buys back 20% of shares outstanding over the next couple years, eh? Sure it’s not $50B but in relative terms it’s about the same magnitude. FFH remains small enough that a puny few billion can move the needle.
 

Remains to be seen whether the operating earnings come through in a big way next year so they can fund it without creative financing. If it turns out that way… well, maybe we’ll live to see 1x bv. 

Eh I more so was referring to the qualitative side. They are so poorly constructed/capitalized that they dont have the liquidity to conduct real buybacks of any size. They have an equity portfolio with tons of garbage that now, much like the likes of pretty much everything in the stock market, has gone up..except they've convinced themselves these are great businesses worth holding onto, and on top of this, this sort of thing is so much part of who Fairfax is, that people have come to terms with this and just kind of accept it. As @omagh said, can you imagine these sort of stunts/issues at Berkshire LOL? The flip side is that a small change in a key variable can allow for somewhat of a rerating, especially when the sentiment is as poor as it is. So thats the angle to play IMO.

[ERICOPOLY]

1 hour ago, Gregmal said:

This is actually a useful reminder, so thank you for stating it so elegantly. Im in for a quick trade but its important not to lose site of what FFH actually is. 

 

You are also a real estate investor and Fairfax will benefit from higher rates.  The low interest rates hold them back.  That's if higher rates happen.  But it's nice to have things that will benefit if you have a heavy RE allocation.

Edited November 19, 2021 by ERICOPOLY

[MMM20]

15 minutes ago, Gregmal said:

Eh I more so was referring to the qualitative side. They are so poorly constructed/capitalized that they dont have the liquidity to conduct real buybacks of any size. They have an equity portfolio with tons of garbage that now, much like the likes of pretty much everything in the stock market, has gone up..except they've convinced themselves these are great businesses worth holding onto, and on top of this, this sort of thing is so much part of who Fairfax is, that people have come to terms with this and just kind of accept it. As @omagh said, can you imagine these sort of stunts/issues at Berkshire LOL? The flip side is that a small change in a key variable can allow for somewhat of a rerating, especially when the sentiment is as poor as it is. So thats the angle to play IMO.

Sort of off topic but it’ll be interesting if this characterization is still out there if Digit doubles its business over the next couple years and is raising money at a $10B+ valuation. Might be a low probability event but then suddenly you’d have a massive winner “hottest indian startup” inside of a maybe still “poorly constructed/capitalized” FFH at like 5x earnings. I’m probably too bullish on Digit but you must admit it’s a wild setup.
 

That sort of option value seems mispriced IMHO even at $500, but hey, maybe digit ends up a 0 and the crap reverts. Who knows. 

 

Or maybe FFH buys back 30-50% of the company over the next couple years with “stunts” + operating cash.

[ERICOPOLY]

In the deal to sell almost 10% of Odyssey, is there an agreement not to buy them back cheap again?

 

[ERICOPOLY]

Buybacks only save us the taxes on the would-be dividends.  That's all that happens.

 

The magic is only in avoidance of taxes.  None other exists.  Period.

 

Berkshire or Fairfax could just dividend out the cash and the shareholders could purchase shares and the value is no different (except the taxes).

 

So if I hear Buffett talk again about the "fair share of taxes" I'll just puke.

[Gregmal]

Theres definitely a lot to like about this setup. The part I dont is having Mr. Watsa here, in current form, at this stage in his life. He's a self made billionaire, successful by any definition....nothing left to prove and not changing his ways. I still laugh at the commentary in one of the other FFH threads. Where Watsa is quoting Buffett or some 1950s value investor stuff and saying he's now, in 2019 figured shit out and someone was just like "yo, this guys been investing since the 70s but now 50 years later he's saying he's learned" LOL. Same sort of life priority things Ive said about Buffett except Buffett just seems mental and lives for little else than compounding dollars and making acquisitions(as evidenced by basically everyone around him admitted as much) and Berkshire actually owns good businesses and has a great abalone sheet. Bring in the new guard. The younger and hungry who are looking to fill the shoes. Yes, I own both BRK and FFH. 

[ERICOPOLY]

44 minutes ago, Gregmal said:

I still laugh at the commentary in one of the other FFH threads. Where Watsa is quoting Buffett or some 1950s value investor stuff and saying he's now, in 2019 figured shit out and someone was just like "yo, this guys been investing since the 70s but now 50 years later he's saying he's learned" LOL. 

 

Yes, I made that comment.  Glad someone appreciated it.  His letter from maybe 7-10 years ago or so talk about how he's been going to Berkshire meetings for 3 decades and how he's learned all kinds of things but then he busts out some "new knowledge" recently last year about new lessons learned about perils of shorting.  Jesus Christ!  It's like Buffett can't teach him a thing.

 

 

 

 

Edited November 19, 2021 by ERICOPOLY

[Parsad]

58 minutes ago, ERICOPOLY said:

Buybacks only save us the taxes on the would-be dividends.  That's all that happens.

 

The magic is only in avoidance of taxes.  None other exists.  Period.

 

Berkshire or Fairfax could just dividend out the cash and the shareholders could purchase shares and the value is no different (except the taxes).

 

So if I hear Buffett talk again about the "fair share of taxes" I'll just puke.

 

As long as the buybacks are below book and accretive to earnings and value per share, then you have two benefits...avoidance of tax on dividends and accretion of earnings.  So it's not just taxes that make the difference.  

 

I would not want Prem or Buffett buying back shares above book...Buffett is doing so, Prem is not so far.  Berkshire shareholders may be better off taking the dividend at purchases at 1.2 times book or higher instead of buybacks.  Cheers!

[ERICOPOLY]

I have no reason to be upset with Prem.  I think it's all the name dropping that bothers me.  The talk of going to Berkhire meetings and absorbing knowledge, the talk of Singleton and Templeton.  I just hate that shit.  It's like some form of sales.  Just speak for Prem.

Edited November 19, 2021 by ERICOPOLY

[ERICOPOLY]

1 minute ago, Parsad said:

 

avoidance of tax on dividends and accretion of earnings.  So it's not just taxes that make the difference.  

 

It's the same.  I ran the math.  There's no difference.  You either have fewer shares outstanding so each share is worth more, or you have shareholders buying more shares for themselves with the cash.

 

Aside from tax avoidance, there's no alchemy.

 

I don't have a masters or phd or anything, and my math bachelors was diluted by the computer science courses (Math/Applied Science).  So I'm not an authority on math, so check my work for yourself.  But I'm saying they're the same.

 

It drives me crazy to hear about all the wonders of buybacks.  It's same as dividends (at least in a tax-free account). 

 

And buybacks at high prices don't really matter either because shareholders can sell if they object.  Really, you have to wonder why they still own the shares if the price is that high????

[Parsad]

51 minutes ago, Gregmal said:

Theres definitely a lot to like about this setup. The part I dont is having Mr. Watsa here, in current form, at this stage in his life. He's a self made billionaire, successful by any definition....nothing left to prove and not changing his ways. I still laugh at the commentary in one of the other FFH threads. Where Watsa is quoting Buffett or some 1950s value investor stuff and saying he's now, in 2019 figured shit out and someone was just like "yo, this guys been investing since the 70s but now 50 years later he's saying he's learned" LOL. Same sort of life priority things Ive said about Buffett except Buffett just seems mental and lives for little else than compounding dollars and making acquisitions(as evidenced by basically everyone around him admitted as much) and Berkshire actually owns good businesses and has a great abalone sheet. Bring in the new guard. The younger and hungry who are looking to fill the shoes. Yes, I own both BRK and FFH. 

 

You don't think Buffett learns at his age?  He bought BYD, AAPL and BABA in his 80's and 90's.  There is no limit or age that restricts a person's ability to learn.  

 

I also don't understand this compulsive lie that is perpetuated about Prem not changing his ways or learning.  As you stated, he's a self-made billionaire, who continues to make money...what exactly do you expect of him...to walk on water?!

 

Frickin' morons on here who are sitting on net worths of a few million dollars at best (yes, I'm shitting on my own audience) espousing how a self-made billionaire needs to get his shit together!  Yes, bring on the younger and hungrier jackasses who think they can make money consistently over a five year record instead of a lifetime.  Cheers!

[modiva]

4 minutes ago, Parsad said:

As long as the buybacks are below book and accretive to earnings and value per share, then you have two benefits...avoidance of tax on dividends and accretion of earnings.  So it's not just taxes that make the difference.  

 

I would not want Prem or Buffett buying back shares above book...Buffett is doing so, Prem is not so far.  Berkshire shareholders may be better off taking the dividend at purchases at 1.2 times book or higher instead of buybacks.  Cheers!

 

+1 on buyback benefits.  Another benefit is dividend savings which adds to the cash balance year after year.  

 

If the buybacks are less than the intrinsic value, they are still better than dividends. No?

I believe Berkshire is trading at <0.8x intrinsic value, but trading at >1.2X book.

 

 

[ERICOPOLY]

2 minutes ago, modiva said:

 

+1 on buyback benefits.  Another benefit is dividend savings which adds to the cash balance year after year.  

 

Ummmmm........

 

How many years does it take at $10 annual dividend to add up to price paid for the shares in the first place?

 

Like.... ummm.... we'll most likely all be dead by then!

 

 

[Gregmal]

1 minute ago, Parsad said:

 

You don't think Buffett learns at his age?  He bought BYD, AAPL and BABA in his 80's and 90's.  There is no limit or age that restricts a person's ability to learn.  

 

I also don't understand this compulsive lie that is perpetuated about Prem not changing his ways or learning.  As you stated, he's a self-made billionaire, who continues to make money...what exactly do you expect of him...to walk on water?!

 

Frickin' morons on here who are sitting on net worths of a few million dollars at best (yes, I'm shitting on my own audience) espousing how a self-made billionaire needs to get his shit together!  Yes, bring on the younger and hungrier jackasses who think they can make money consistently over a five year record instead of a lifetime.  Cheers!

Well that is why I said Buffett just happens to have an obsession with making money. Same can definitely not be said for Prem the last decade, so let’s not act like he done that. He’s blown one of the greatest bull markets in history doing unnecessary stuff, buying shitcos, bailing out “national treasuries”, unable to even execute a real buyback and constantly having to pull gimmicks because liquidity is shot… I mean you would literally have to try to pick losers consistently to do this bad and even then I don’t think one could match his past decade. So I don’t see how it’s unwarranted to criticize and wonder if there aren’t talented underlings at FFH that could and probably should be calling the shots. It’s no slight either to say that there is some excitement warranted for the next in line at Berkshire either? Why is there so much loyalty to Prem Watsa? 
 

Just cuz he s a billionaire and self made doesn’t absolve him from being a dumpster fire. You wouldn’t make the case that Larry Ellison is taking/took Oracle seriously would you? This shit happens all the time. People get to a certain point and their priorities change. That’s fine, but then don’t pretend like the throne you gave up is still yours.