Fairfax 2024

[SafetyinNumbers]

3 hours ago, petec said:

 

Why is this, please?

Public companies have more liquidity than private companies.

[StubbleJumper]

11 hours ago, SafetyinNumbers said:

I’m not familiar with all of the context around that transaction. I know they bumped after getting the largest shareholder to sign a lock up agreement. Fairfax was also trading at a similar multiple although it wasn’t a great time to be an investor as book value didn’t grow much for the next 11 years as a result of the hedges and low interest rates. Maybe cash to buy other stocks in September 2009 was actually quite valuable at the time as there were a lot of bargains post GFC. 
 

You don’t think so?

 

 

When the minority position of a company is bought out at less than 1x, what the majority shareholder is saying is that it's worth more dead than alive. 

 

One of the ways that you can get a sense of "fairness" is to invert the situation.  Would Prem have allowed his ORH position to be sold for that price?  Not even close.

 

Same deal for the Atlas takeout.  None of the principal owners (FFH, Washington, Sokol, etc) would have accepted the price that minority shareholders received.

 

Okay, that's business and that's life.  But, these types of events do put a tarnish on the "fast and friendly" image that Prem has tried to cultivate over the decades.  And, as you have read in these comments, it has led some investors to have a preference to invest in FFH directly rather than invest along with FFH in some other company like Fairfax India.

 

 

SJ

[StubbleJumper]

8 hours ago, Viking said:

I was a very happy shareholder the day the deal was announced - i had my biggest one day gain in my portfolio to that point. A very big chunk of my portfolio was in ORH when Fairfax took ORH private. And one of the reasons i was so heavy at the time was there was a good chance that Fairfax was going to take it out. I think i was banging the table pretty hard on the opportunity. Not every shareholder is buy and hold  But that was back in the day when i was a trader. Today i am an investor (wink, wink…)

 

 

Nothing wrong with making a quick buck if that was your investing hypothesis (I sometimes like a quick hit too!).  But, an interesting mental exercise would be to construct a parallel universe where the minority position in ORH was NOT repurchased and was still trading on the NYSE.  What might be the stock price today?

 

 

SJ

[SafetyinNumbers]

4 minutes ago, StubbleJumper said:

 

 

When the minority position of a company is bought out at less than 1x, what the majority shareholder is saying is that it's worth more dead than alive. 

 

One of the ways that you can get a sense of "fairness" is to invert the situation.  Would Prem have allowed his ORH position to be sold for that price?  Not even close.

 

Same deal for the Atlas takeout.  None of the principal owners (FFH, Washington, Sokol, etc) would have accepted the price that minority shareholders received.

 

Okay, that's business and that's life.  But, these types of events do put a tarnish on the "fast and friendly" image that Prem has tried to cultivate over the decades.  And, as you have read in these comments, it has led some investors to have a preference to invest in FFH directly rather than invest along with FFH in some other company like Fairfax India.

 

 

SJ

You take all responsibility off of the minority shareholders who need to approve the transactions. I think that’s what makes it fair and friendly. For Atlas, FFH didn’t put any new cash up so it’s not a great comparison but again the minority approved the transaction.

[StubbleJumper]

32 minutes ago, SafetyinNumbers said:

You take all responsibility off of the minority shareholders who need to approve the transactions. I think that’s what makes it fair and friendly. For Atlas, FFH didn’t put any new cash up so it’s not a great comparison but again the minority approved the transaction.

 

 

Well, again, that's a bit of a philosophical question.  Is it okay to screw a few of your business partners as long as a bunch of your other business partners agree?

 

And on Atlas, FFH provided its approval for the take-private transaction even if they didn't add any cash.  They still agreed to screw some minority shareholders.

 

As I said, that's business and that's life.  But, these sorts of transactions, along with the periodic governance abuses, do tend to tarnish the image that Prem has attempted to cultivate over the years.

 

 

SJ

[cwericb]

Yes the Fibrek case was neither fair nor friendly. But you don't have to take my word for it. Large shareholders sued Fairfax, took the matter to court and won. The Court found that the take over price was neither fair, nor friendly, nor legal. 

 

The Court also found that Prem's testimony was evasive and made no sense. If one reads the actual judgement I am putting the Judge's comments mildly. If memory serves me right, Fairfax appealed and also lost the appeal.

 

In the end, the Court found for the Plaintiffs (the large shareholders of Fibrek) and adjusted the sale price to double what Fairfax got away with paying. Unfortunately that only applied to the shareholders who were part of the lawsuit and the small shareholders got screwed by Fairfax.

 

Now we all make mistakes as did Prem in this case. But from the Fibrek take over many of us learned, or should have learned, that just because Fairfax may have a nice sounding motto i.e. "Fair and Friendly", a motto is no guarantee that all takeovers will necessarily be treated as such. "He who ignores history ...."

 

[dartmonkey]

Yes the Fibrek case was neither fair nor friendly. But you don't have to take my word for it. Large shareholders sued Fairfax, took the matter to court and won. The Court found that the take over price was neither fair, nor friendly, nor legal. 

 

 

1 hour ago, cwericb said:

Yes the Fibrek case was neither fair nor friendly. But you don't have to take my word for it. Large shareholders sued Fairfax, took the matter to court and won. The Court found that the take over price was neither fair, nor friendly, nor legal. 

 

The Court also found that Prem's testimony was evasive and made no sense. If one reads the actual judgement I am putting the Judge's comments mildly. If memory serves me right, Fairfax appealed and also lost the appeal.

 

In the end, the Court found for the Plaintiffs (the large shareholders of Fibrek) and adjusted the sale price to double what Fairfax got away with paying.

 

 

Yes and no. The initial ruling did double the share price, from $1 to $1.99, and found much to criticize with Resolute and Fairfax. But the case was appealed, and much of the appeal was allowed, with sale price adjusted down closer to the original $1 offered, from $1.99 to $1.597. The appeal judge found that the judge of the appealed ruling had committed numerous errors, for instance not considering the fact that the $1 price already included a premium, and ignoring the fact that a large majority of minority shareholders had accepted the $1 offered. The appeal judge also found that much of the criticism of the purchaser (Resolute) and the shareholders with which it had signed lock-up agreements (Fairfax) was unfounded.

 

Ruling here: https://courdappelduquebec.ca/en/judgments/details/fixation-des-actions-de-fibrek-inc/

 

Excerpt: Appeal from a judgment of the Superior Court fixing the fair value of the shares under s. 190(15) of the Canada Business Corporations Act (R.S.C. 1985, c. C-44). Allowed in part.

 

In the context of a hostile take-over bid, the application was filed after certain shareholders exercised their right to dissent pursuant to s. 190 of the Canada Business Corporations Act. To determine the fair value of the shares, the trial judge used as a starting point the value of a bid competing with the accepted take-over bid ($1.40), to which he added $0.27 to account for synergies arising from the transaction and $0.40 representing the added value of a lucrative Hydro-Québec contract. The judge then subtracted $0.08 per share for environmental liabilities identified after the assets were taken over, for a final value of $1.99 per share. In addition to contesting this value on appeal, the purchaser of the majority of Fibrek Holding Inc.’s common shares argues that the judge erred in adding the additional indemnity under art. 1619 of the Civil Code of Québec (S.Q. 1991, c. 64) to the amount payable.

 

The judge committed certain palpable and overriding errors. First, he should not have disregarded the value of the purchaser’s offer as a starting point for the analysis. Without being the sole relevant factor, market value is a reliable indicator of the fair value of shares. The purchaser’s offer, however, included a premium over the price at which the shares were trading on the market. Further, a large majority of the shareholders, holding 115 million shares, had accepted it. Also, the judge’s criticism of the conduct of the purchaser and the shareholders with whom it had signed hard lock-up agreements for 46% of the outstanding shares was unfounded, although it is true that this made it practically impossible to put a competing bid over the 50% approval mark.

The judge also committed a reviewable error by using a competing bid as the starting price. Indeed, it was nearly impossible for such an offer to materialize, given the conditions attached to it. Moreover, in the context where both the purchaser’s offer and the competing bid included consideration payable in shares, he ought to have taken into account the significant drop in the value of those shares on the valuation date, which he failed to do. He also committed many errors by adding the value of the synergies arising from the transaction to the competing bid, namely because that led him to conduct a hypothetical auction rather than use objective evidence. Although the added premium for the Hydro-Québec contract was somewhat speculative, there is no reason to intervene in this respect on appeal. In conclusion, by updating the purchaser’s offer as at the valuation date, by adding the value of the Hydro-Québec contract and subtracting the environmental liabilities, the Court fixes the value at $1.5973 per share. 

 

 

It is a good thing for Fairfax shareholders that making 'fair and friendly' offers does not extend to offering a price so high that no minority shareholders object to it. 

[TheFranc]

Any business specific reason we are getting crushed today?

[Malmqky]

Just now, TheFranc said:

Any business specific reason we are getting crushed today?

 

No...go take a look at the rest of the market today

[cwericb]

34 minutes ago, dartmonkey said:

Yes the Fibrek case was neither fair nor friendly. But you don't have to take my word for it. Large shareholders sued Fairfax, took the matter to court and won. The Court found that the take over price was neither fair, nor friendly, nor legal. 

 

 

 

Yes and no. The initial ruling did double the share price, from $1 to $1.99, and found much to criticize with Resolute and Fairfax. But the case was appealed, and much of the appeal was allowed, with sale price adjusted down closer to the original $1 offered, from $1.99 to $1.597. The appeal judge found that the judge of the appealed ruling had committed numerous errors, for instance not considering the fact that the $1 price already included a premium, and ignoring the fact that a large majority of minority shareholders had accepted the $1 offered. The appeal judge also found that much of the criticism of the purchaser (Resolute) and the shareholders with which it had signed lock-up agreements (Fairfax) was unfounded.

 

Ruling here: https://courdappelduquebec.ca/en/judgments/details/fixation-des-actions-de-fibrek-inc/

 

Excerpt: Appeal from a judgment of the Superior Court fixing the fair value of the shares under s. 190(15) of the Canada Business Corporations Act (R.S.C. 1985, c. C-44). Allowed in part.

 

In the context of a hostile take-over bid, the application was filed after certain shareholders exercised their right to dissent pursuant to s. 190 of the Canada Business Corporations Act. To determine the fair value of the shares, the trial judge used as a starting point the value of a bid competing with the accepted take-over bid ($1.40), to which he added $0.27 to account for synergies arising from the transaction and $0.40 representing the added value of a lucrative Hydro-Québec contract. The judge then subtracted $0.08 per share for environmental liabilities identified after the assets were taken over, for a final value of $1.99 per share. In addition to contesting this value on appeal, the purchaser of the majority of Fibrek Holding Inc.’s common shares argues that the judge erred in adding the additional indemnity under art. 1619 of the Civil Code of Québec (S.Q. 1991, c. 64) to the amount payable.

 

The judge committed certain palpable and overriding errors. First, he should not have disregarded the value of the purchaser’s offer as a starting point for the analysis. Without being the sole relevant factor, market value is a reliable indicator of the fair value of shares. The purchaser’s offer, however, included a premium over the price at which the shares were trading on the market. Further, a large majority of the shareholders, holding 115 million shares, had accepted it. Also, the judge’s criticism of the conduct of the purchaser and the shareholders with whom it had signed hard lock-up agreements for 46% of the outstanding shares was unfounded, although it is true that this made it practically impossible to put a competing bid over the 50% approval mark.

The judge also committed a reviewable error by using a competing bid as the starting price. Indeed, it was nearly impossible for such an offer to materialize, given the conditions attached to it. Moreover, in the context where both the purchaser’s offer and the competing bid included consideration payable in shares, he ought to have taken into account the significant drop in the value of those shares on the valuation date, which he failed to do. He also committed many errors by adding the value of the synergies arising from the transaction to the competing bid, namely because that led him to conduct a hypothetical auction rather than use objective evidence. Although the added premium for the Hydro-Québec contract was somewhat speculative, there is no reason to intervene in this respect on appeal. In conclusion, by updating the purchaser’s offer as at the valuation date, by adding the value of the Hydro-Québec contract and subtracting the environmental liabilities, the Court fixes the value at $1.5973 per share. 

 

 

It is a good thing for Fairfax shareholders that making 'fair and friendly' offers does not extend to offering a price so high that no minority shareholders object to it. 

 

 

So bottom line, the Court found that the price paid by Fairfax should have been only 60% higher rather than double?

[Viking]

Looks like volatility in Fairfax's share price is back. Love it. 

 

Fairfax's stock is currently trading at US$1,070.

 

Book value at June 30 was $980/share.

 

At June 30, Fairfax is sitting on non-insurance companies gains= $68/share pre tax

They also will book a nice gain (incremental $300 million pre-tax?) when the Stelco sale is approved in Q4.

 

Let's round the above two items to $60 after-tax. That puts adjusted book value at about $1,040. 

 

Fairfax's stock is trading today at a hair over 'adjusted' book value. 

 

The company is firing on all cylinders. They just released a great earnings report. They are positioned to do very well in the coming years.

 

And they just told us that with the hard market slowing the insurance subs are generating excess capital that is being returned to Fairfax. They also just told us they think their shares are cheap and they will continue to buy them back. 

 

That is called shooting fish in a barrel.

 

PS: Long term Fairfax shareholders are the big winners. From a capital allocation perspective, Fairfax has prioritized stock buybacks. The lower the share price the better. 

Edited August 2, 2024 by Viking

[MungerWunger]

Shooting fish in a barrel with the water drained out

[Hamburg Investor]

26 minutes ago, Viking said:

Looks like volatility in Fairfax's share price is back. Love it. 

 

Fairfax's stock is currently trading at US$1,070.

 

Book value at June 30 was $980/share.

 

At June 30, Fairfax is sitting on non-insurance companies gains= $68/share pre tax

They also will book a nice gain (incremental $300 million pre-tax?) when the Stelco sale is approved in Q4.

 

Let's round the above two items to $60 after-tax. That puts adjusted book value at about $1,040. 

 

Fairfax's stock is trading today at a hair over 'adjusted' book value. 

 

The company is firing on all cylinders. They just released a great earnings report. They are positioned to do very well in the coming years.

 

And they just told us that with the hard market slowing the insurance subs are generating excess capital that is being returned to Fairfax. They also just told us they think their shares are cheap and they will continue to buy them back. 

 

That is called shooting fish in a barrel.

 

PS: Long term Fairfax shareholders are the big winners. From a capital allocation perspective, Fairfax has prioritized stock buybacks. The lower the share price the better. 

couldn‘t agree more! Just posted something similar @ seekingalpha a few minutes ago. 
 

cheers!

[Junior R]

if they where buying back around $1500 ish CAD..they probably will buy back like crazy next week

[Crip1]

Just over $1K shares traded today on the US OTC market, total amount of those trades at current prices is under $1.2M. 

 

6% share price decline applied against $26B market cap means a decline of roughly $1.6B if market cap.

 

So, $1.2M of trades resulted in 1.6B of "lost" market cap.

 

Yawn.

 

-Crip

[gfp]

3 minutes ago, Crip1 said:

Just over $1K shares traded today on the US OTC market, total amount of those trades at current prices is under $1.2M. 

 

6% share price decline applied against $26B market cap means a decline of roughly $1.6B if market cap.

 

So, $1.2M of trades resulted in 1.6B of "lost" market cap.

 

Yawn.

 

-Crip

 

What?  I don't understand any of that.  Volume is approaching 60,000 shares for Fairfax at mid-day.  There is a buyer like me for every seller.  Far more than $1.2 million worth of stock is changing hands

[Crip1]

3 minutes ago, gfp said:

 

What?  I don't understand any of that.  Volume is approaching 60,000 shares for Fairfax at mid-day.  There is a buyer like me for every seller.  Far more than $1.2 million worth of stock is changing hands

Are you seeing that volume on TSE?

[gfp]

3 minutes ago, Crip1 said:

Are you seeing that volume on TSE?

 

That is combined volume for both listings.  TSE volume was over 50k shares last I checked

edit: bloomberg is showing TSE volume over 74k shares presently 

Edited August 2, 2024 by gfp

[valuesource]

4 minutes ago, gfp said:

 

That is combined volume for both listings.  TSE volume was over 50k shares last I checked

edit: bloomberg is showing TSE volume over 74k shares presently 

Volume:  TMX - 45,554  All Toronto Mkts (98% Alpha, Chix, Pure, NEO) 63,175  FRFHF OTC - 5,302

[gfp]

Thanks - I guess bloomberg was reporting what the Toronto Stock Exchange calls "consolidated volume" - which is now  over 84k shares

https://money.tmx.com/en/quote/FFH

[Crip1]

16 minutes ago, gfp said:

Thanks - I guess bloomberg was reporting what the Toronto Stock Exchange calls "consolidated volume" - which is now  over 84k shares

https://money.tmx.com/en/quote/FFH

I stand corrected.

 

All the same, with 84K shares traded, that means about $90M of shares traded have resulted in excess of a $1B market cap hit.

 

-Crip

[dartmonkey]

2 hours ago, cwericb said:

 

 

So bottom line, the Court found that the price paid by Fairfax should have been only 60% higher rather than double?

 

Yes. Courts do sometimes make judgments I don't agree with, but the judgment by 2 different judges that Fairfax supported a transfer of these Fibrek shares at a price that was beneath fair value (half of fair value or 2/3, according to the appellate judge), does mean you have a point.

 

On the other hand, I think one could make a strong argument that it was hard to know exactly how much these shares were worth, and the $1 price, which included a premium, was accepted by the majority of minority shareholders. I can see how this would be disappointing and even infuriating, if I were a minority shareholder who thought it was worth much more, but I don't see why Fairfax should pay more than it has to for those minority shares.

 

And given that this was not even an acquisition, but rather a purchase of Fibrek by Resolute, Fairfax had an incentive to price the shares higher, not lower. A low Fibrek share price was a benefit to Resolute, but not to Fairfax itself. Or am I misunderstanding the incentives here?  

[dartmonkey]

3 hours ago, Malmqky said:

No...go take a look at the rest of the market today

 

I just increased my stake from 36% to 39%. I love the idea of paying the same price that shares were trading for in March, despite now knowing that we have 2 blowout quarters, almost all the big associated investments are doing brilliantly, share repurchases are steaming ahead, and share prices are close to book. And this is DESPITE the repurchases, which tend to make the price:book ratio higher. I think Mr Market is very likely to swing back to a more reasonable (higher price) when he sobers up.

[Haryana]

4 hours ago, dartmonkey said:

Yes and no. The initial ruling did double the share price, from $1 to $1.99, and found much to criticize with Resolute and Fairfax. But the case was appealed, and much of the appeal was allowed, with sale price adjusted down closer to the original $1 offered, from $1.99 to $1.597. The appeal judge found that the judge of the appealed ruling had committed numerous errors, for instance not considering the fact that the $1 price already included a premium, and ignoring the fact that a large majority of minority shareholders had accepted the $1 offered. The appeal judge also found that much of the criticism of the purchaser (Resolute) and the shareholders with which it had signed lock-up agreements (Fairfax) was unfounded.

 

Ruling here: https://courdappelduquebec.ca/en/judgments/details/fixation-des-actions-de-fibrek-inc/

 

It is a good thing for Fairfax shareholders that making 'fair and friendly' offers does not extend to offering a price so high that no minority shareholders object to it. 

 

Appreciated information on Appeal. Most people know just about derogatory news from a lower court.

 

A minority of the minority shareholders can always find reason to complain even if Fairfax saved them.

 

Fairfax actually made those companies survive otherwise they would have gone bankrupt much earlier.

 

Remember this guy who was complaining in advance that Fairfax may buyout the Blackberry too cheap.

https://www.prnewswire.com/news-releases/concerned-shareholder-urges-blackberry-board-to-guard-against-unfair-buyout-bids-and-oppose-watsa-as-director-as-board-considers-strategic-alternatives-301858167.html

"Based on comparative values of companies like CrowdStrike and CyberArk, it is not overly optimistic to project BlackBerry's stock price to be $15-$25/share in the next 12-18 months if John Chen and his team can achieve their realistic projections." 

[cwericb]

Re: Fibrek takeover, it seems pretty simple:

 

1) Shareholders of Fibrek took Fairfax to court because Fairfax underpaid shareholders.

2) The initial Court ruling found that Fairfax should have paid shareholders 100% more than they paid.

3) The appeal court found that Fairfax should have paid 60% more then Fairfax paid.

4) Not one, but two courts both found that Fairfax substantially underpaid Fibrek shareholders - and NOT by small percentages.

 

Bottom line, Fairfax grossly underpaid shareholders for their shares and that to me, seems neither Fair nor Friendly.

 

For some background: https://thecobf.com/forum/search/?q=fibrek&quick=1&updated_after=any&sortby=relevancy&search_in=titles