Fairfax 2024

[dartmonkey]

 

 

23 minutes ago, cwericb said:

"There are plenty of examples of people being involved with Fairfax subs that did not feel "fair and friendly" with the take-outs/take-unders/sale of share of the underlying investments you could have been coinvested with them on."

 

Yup. I try to stay away from companies in which Fairfax is involved. However, more than once Fairfax has become involved with companies that I already own. Past history would show that the "Fair and Friendly" refers to the Fairfax side of deals and not necessarily the other side.

 

Some of us have a long memory, but you only have to go back to the Fibrek situation to see how shareholders got royally screwed by Prem and Fairfax.

 

I think there is a big difference between an investment vehicle that Fairfax has set up, where it has a bit of an obligation to investors to be fair, and minority investors in a company like Fibrek, who feel that their investment got taken away from them when it was acquired (at a 39% premium) by another company (Resolute) with the support of Fairfax. Fairfax has no obligation to other Fibrek investors, but it arguably does have an obligation to Fairfax India investors. 

[Viking]

58 minutes ago, cwericb said:

"There are plenty of examples of people being involved with Fairfax subs that did not feel "fair and friendly" with the take-outs/take-unders/sale of share of the underlying investments you could have been coinvested with them on."

 

Yup. I try to stay away from companies in which Fairfax is involved. However, more than once Fairfax has become involved with companies that I already own. Past history would show that the "Fair and Friendly" refers to the Fairfax side of deals and not necessarily the other side.

 

Some of us have a long memory, but you only have to go back to the Fibrek situation to see how shareholders got royally screwed by Prem and Fairfax.

@cwericb This is a really interesting topic. Fairfax has a value investing framework with everything that it does - with both insurance and investments. This means you buy low and sell high. It also means you opportunistically take advantage of Mr Markets frequent mood changes. As a Fairfax shareholder i want them to do this. 
 

When Fairfax took Recipe private they paid a 50% premium to where the stock was trading at the time. Now i think Fairfax got a good price. But at the time, i thought Recipe shareholders got a very good price. 
 

Poseidon is another interesting example. My guess is lots of Atlas shareholders were not happy with the takeout price. But did they get screwed? It might look like it in a few years when Fairfax starts to monetize its position. I think taking Atlas private has been a BRILLIANT move for Fairfax shareholders. I think it is much easier/better to operating Atlas as a private company -  out of the public market spotlight. Especially given everything that has happened over the past 2 years (freight rates plummeting, interest rates spiking, freight rates spiking). Importantly it has removed an enormous amount of volatility from Fairfax’s reported results - that is a topic that deserves its own post.

 

There are also the examples of when Thomas Cook India (Covid) and John Keells (currency crisis) needed cash infusions. Fairfax stepped up but demanded its pound of flesh (restructuring and increased ownership on very favourable terms). 
 

Early in 2022, Fairfax and Fairfax India took out a large player at $12/share - a criminally low price. 
 

Sorry for my rambling post. My point is over the past 5 years Fairfax has spent an enormous amount of money increasing its ownership in companies it already owns (including its own stock). Sometimes it flexes its position up and then back down (Thomas Cook India, Quess). Their moves have built enormous value for Fairfax shareholders. I hope they keep doing what they have been doing. 

Edited August 1, 2024 by Viking

[SafetyinNumbers]

47 minutes ago, dartmonkey said:

 

 

 

I think there is a big difference between an investment vehicle that Fairfax has set up, where it has a bit of an obligation to investors to be fair, and minority investors in a company like Fibrek, who feel that their investment got taken away from them when it was acquired (at a 39% premium) by another company (Resolute) with the support of Fairfax. Fairfax has no obligation to other Fibrek investors, but it arguably does have an obligation to Fairfax India investors. 

I have a lot of empathy for Fairfax and Prem in this Fibrek situation. With context, I think Fairfax acted appropriately in this situation. I know that’s not the opinion of most investors and maybe the courts but as a value investor that has signed a lock up agreement, I appreciate the situation they were in.

[SafetyinNumbers]

1 hour ago, hardcorevalue said:

Technical analysis is tarot cards for men. 

Save your mental horsepower for actual analysis!

I used to think this way but have come to appreciate that it’s clear some traders have skill when it comes to applying technical analysis much like many of us think we do when applying fundamental analysis. All traders and investors are looking for high probability set ups. Successful traders tend to use flow and technical analysis to look for favourable chart patterns and then apply very stringent risk management heuristics. I don’t have the personality for it personally but it seems to work for a lot of people. Instead, my personality forces me to torture myself with fundamental analysis and the inevitable resulting when I’m wrong or at least the price says I’m wrong. 

[hardcorevalue]

i can’t imagine selling something that’s undervalued because it’s an ugly chart or vice versa

 

that’s what makes a market i guess.

I should celebrate more people doing it, more money for me if i’m right.

[formthirteen]

11 minutes ago, hardcorevalue said:

i can’t imagine selling something that’s undervalued because it’s an ugly chart or vice versa

 

that’s what makes a market i guess.

I should celebrate more people doing it, more money for me if i’m right.

 

These are ugly charts of unviable business models. Technical analysis clearly indicates, "Yes, you are right. There's no viable business model.":

 

These businesses are undervalued according to management and owners.

[Gamma78]

On 7/31/2024 at 6:49 PM, Viking said:

Fairfax  - The Influence of Henry Singleton

 

“History never repeats itself, but it does often rhyme.” Mark Twain

 

In my last post I did a short review of Henry Singleton. He has been an important influence/mentor to Fairfax. Today we are going to try to connect some of the dots. We are going to focus on capital allocation and one tool in the capital allocation toolbox - shareholders’ equity. And how, when it is used properly, it can build significant long term per share value for shareholders.

 

But remember… when comparing the present with the past we will never find an exact ‘repeat.’ That is not the point/objective of doing this exercise. However, if we look closely, we can find important examples of where the present does indeed ‘rhyme’ with the past. And that, in turn, can help improve our understanding of Fairfax - what they are doing and what they might do in the future.

---------

Link to my previous post on Henry Singleton

• https://thecobf.com/forum/topic/20517-fairfax-2024/page/65/#comment-572533

----------

Let’s start with the big picture

 

A CEO has two basic responsibilities:

• Operations (run the business)
• Allocate capital

When allocating capital, the basic choices available to the management team at Fairfax have been captured in the table below. In this post, we are going to focus on one tool in the capital allocation toolbox - shareholders’ equity - both as a source of capital (issuing stock) and as a use of capital (repurchasing stock).

 

 

 

Shareholders’ equity

 

The playbook of how a management team can use shareholders’ equity to drive long term per share value for shareholders is pretty simple:

• Issue stock when it is overvalued - and buy assets that are undervalued.
• Buy back stock when it is undervalued.
• Be aggressive at extremes (overvaluation and undervaluation).
• Keep doing both as long as conditions remain favourable.

There are two key reasons this strategy works so well:

• Mr. Market’s behaviour can very irrational at times - and it can persist for years.
• The management team knows what the intrinsic value of the company is - it has a big information advantage over Mr. Market.

The proper execution of this strategy over time can lead to extraordinary results for long term shareholders. Henry Singleton taught us this when he ran Teledyne.

—————

Fairfax Financial - Shareholders’ Equity - A 38-Year Journey

 

Let’s review how Fairfax Financial has used shareholders’ equity over their 38 year history to see what we can learn.

 

We will break our analysis into two time-frames:

• Phase 1 - 1985 to 2017 - Building out the P/C Insurance Platform
• Phase 2 - 2018 to today - Optimize the Operating Businesses and Aggressively Shrink the Share Count

Phase 1 - 1985 to 2017 - Building Out the P/C Insurance Platform

 

In 1985, the year it was founded, Fairfax began its journey with 5 million shares outstanding.

 

From 1985 to 2017, Fairfax:

• Issued 29.5 million shares
• Repurchased 6.7 million shares

As a results, effective shares outstanding at the end of 2017 were 27.8 million (5 + 29.5 - 6.7) - they increased by a total of 22.8 million over the previous 32 years.

 

Over the first 32 years of their existence (from 1985 to 2017), share issuance was used aggressively as a source of cash - and this cash was used to grow Fairfax’s global P/C insurance platform. From 1985 to 2017, Fairfax issued a total of 29.5 million shares. Shares were generally issued at a premium to book value (sometimes a significant premium). Proceeds were used to buy other P/C insurance companies trading at a much lower valuation. Bottom line, looking at share issuance in aggregate, Fairfax got good value.

 

Share buybacks have also been a meaningful use of cash for Fairfax. From 1985 to 2017, Fairfax repurchased a total of 6.7 million shares. Repurchases were 22% of issuance - over the years, for every 5 shares that were issued, Fairfax repurchased 1 share back. Share were generally repurchased when Fairfax’s stock was trading at a discount/on sale.  Like with share issuance, Fairfax got good value when they repurchased shares.

 

So in general, Fairfax issued stock when its shares were trading at a high valuation and used the cash to buy P/C insurance companies that were trading at a much lower valuation. Fairfax also bought back modest amounts of stock at times when its shares were trading at a low valuation.

 

This looks like it was textbook application of the principals of what a management team should do.

 

Is there a way we can actually measure how successful this strategy has been?

 

Yes. We can look at the change in long term per share book value (BVPS).

 

From 1985 to 2017, Fairfax increased:

• the share count at a CAGR of 5.5%.
• common shareholders equity at a CAGR of 25.8%.
• BVPS at a CAGR of 19.5%.

Using its stock to drive the growth of its P/C insurance platform resulted in enormous long term per share value creation for shareholders.

 

 

From Fairfax’s 2017AR:

 

—————

 

An important strategic change in 2017

 

With the purchase of Allied World in 2017, Fairfax officially completed the aggressive 32-year build out of their global P/C insurance platform. Moving forward, Fairfax would be focused on two things:

• Continue to do smaller bolt-on P/C insurance acquisitions.
• Optimize its existing insurance operations and investment portfolio.

Truth be told, Fairfax got to work optimizing its insurance operations back in 2011, when Andy Barnard was appointed President and COO to manage Fairfax’s total insurance business. When it comes to investments, fixed income has always been a strength of Fairfax. The issue at Fairfax in 2017 was its equity portfolio - it was stuffed full of underperforming companies, many of which were significant cash drags (they were not delivering cash to Fairfax - they needed cash from Fairfax).

 

By optimizing the insurance operations and investment portfolio Fairfax would be able to improve the ‘cash flow from operations,’ the most important source of cash.

 

What was the company planning on doing with the future free cash flow?

 

In the 2017AR, Prem told investors what was to come - Fairfax intended to get much more aggressive with share buybacks.

 

“Henry Singleton, at Teledyne, reversed this trend (of growing share count), as you know, and over the next ten years we expect to do the same - use our free cash flow to buy back our shares!”

 

At the time, Prem was laughed at (pretty loudly) for what he said.

 

Let’s look at what has happened at Fairfax since then.

 

Phase 2 - 2018 to Today - Optimize the Operating Businesses and Aggressively Shrink the Share Count

 

What did Fairfax do?

 

2018-2023: Aggressively reduce the share count

 

Effective shares outstanding at Fairfax peaked at 27.75 million in 2017. Over the past 6 years (to December 31, 2023), Fairfax reduced effective shares outstanding by 4.75 million, or 17.1%,  at an average cost of $484/share.

 

From 2018 to 2023, Fairfax was able to repurchase a significant amount of shares at a very low valuation. This is a great example of exceptional value creation by the management team at Fairfax.

 

 

What does this do to the important per share metrics?

 

Here is Prem’s slide from Fairfax’s AGM in April 2024.

 

 

Before moving on, we are going to take a minute to review a couple of things Fairfax did in 2020 and 2021. Because they provide some great insight into how Fairfax thinks about and executes capital allocation.

—————

Classic Fairfax - Turning Lemons into Lemonade

 

Fairfax’s share price got historically cheap in 2020/2021. I won’t get into the reasons as to why that happened (I have covered that topic in detail in many past posts).

 

2020 and 2021 was a great time for Fairfax to buy back a meaningful amount of its stock. The problem Fairfax had at the time was they were cash poor.

 

What to do? Classic Fairfax - get creative.

 

Fairfax made two brilliant moves in late 2020 and 2021.

 

1.) Fairfax Total Return Swap

 

In late 2020/early 2021, Fairfax established a position in a total return swap giving it exposure to 1.96 million Fairfax shares at an average price of $373/share. Although not technically a buyback, establishing this position serves as the next best thing. This position gave Fairfax exposure to 7.5% of its effective shares outstanding (26.2 million at Dec 31, 2020). That is a massive position.

 

2.) Dutch Auction

 

In late 2021, Fairfax executed a dutch auction and repurchased 2 million Fairfax shares at $500/share. To fund the repurchase, Fairfax sold a 9.99% equity stake in their largest P/C insurance company Odyssey Group to CPPIB and OMERS for proceeds of $900 million. This was a wicked smart way to quickly source a significant amount of cash from trusted, external sources. In turn, this allowed Fairfax to capitalize on a short term opportunity (share price trading at crazy low price).

• https://www.fairfax.ca/press-releases/fairfax-announces-us1-0-billion-substantial-issuer-bid-and-sale-of-9-99-minority-stake-in-odyssey-group-2021-11-17/

How have these two moves worked out?

 

1.) The FFH-TRS position is up $1.5 billion over the past 3.6 years (before carrying costs). This has turned into one of Fairfax’s best ever investments.

 

 

2.) Fairfax’s book value is $945 at March 31, 2024. Buying back 2 million shares at $500/share only 2.5 years ago was a steal of a deal for Fairfax and its shareholders.

 

Both of these moves executed by Fairfax scream Henry Singleton. They were:

• Very creative - establishing TRS and selling 9.99% of Odyssey to external partners.
• Very rational - Fairfax’s stock was trading at a historically low valuation.
• Highly opportunistic - seize the moment.
• Executed in scale. Both of these moves were of a significant size.
• Very unconventional - both were classic Fairfax moves.

 

Most impressively, these two deals were executed at a time when investors in Fairfax were literally ‘freaking out.’ But the management team at Fairfax was not ‘freaking out.’  Instead, the management team at Fairfax saw the opportunity and made two outstanding investments - the temperament the senior management team displayed during these dark times shows, among other things, great character. This should speak volumes to investors about the quality of the management team in place at Fairfax. This bodes well for the future.

 

It should also be noted that before Fairfax made either of these two investments, Prem told Fairfax shareholders very loudly that he thought Fairfax’s shares were dirt cheap. In June of 2020 he purchased $149 million in Fairfax shares at an average price of $309/share.

• https://www.fairfax.ca/press-releases/prem-watsa-acquires-additional-shares-of-fairfax-2020-06-15/

—————

OK, let’s circle around and get back on track.

 

Has Fairfax continued to buy back its shares in 2024?

 

My guess is when Fairfax reports Q2 results later this week, effective shares outstanding will come in at less than 22.4 million at June 30, 2024. Fairfax is on track to reduce effective shares outstanding by 1 million in 2024. This is at a much higher pace than we have seen in recent years.

 

Why is the pace of buybacks picking up in 2024?

 

I can think of two reasons:

 

1.) Low valuation: Fairfax’s stock continues to trade at a cheap valuation - its valuation is well below that of peers.

 

2.) Record free cash flow: Fairfax is now generating a record amount of free cash flow. It is coming from two sources:

• Record cash flow from operations (primarily operating income)
• Significant cash from asset sales

Since 2018, Fairfax has been working hard at optimizing its cash flow from operations. Importantly, the equity portfolio has been fixed. All three of Fairfax’s economic engines are now performing at a high level at the same time - and they have never been positioned better for the future:

• Insurance
• Investments - fixed income
• Investments - equities

Asset sales have historically been an important source of cash for Fairfax (and investment gains). This strength of Fairfax continues. The most recent example was the just-announced sale of Stelco. In 2023, it was the sale of Ambridge. In 2022 it was the sale of pet insurance and Resolute forest Products. All four sales were executed with the buyers all paying a premium price.

 

As a result, Fairfax is generating record free cash flow. And this looks set to continue in the coming years.

 

Summary

 

From 1985 to 2017, Fairfax was focussed on building out its global P/C insurance footprint. To fund this growth, Fairfax used its stock - usually issued when the stock was trading at a premium valuation.

 

In 2017, with the Allied World acquisition, Fairfax was officially done building out its global P/C platform. The focus of the company shifted to optimizing the cash flow from the insurance operations and investment portfolio.

 

From 2018 to today, Fairfax has reduced effective shares outstanding by more than 19%. Fairfax was very opportunistic and shares were repurchased at a very low valuation.

 

Over the past 38 years, Fairfax has put on a clinic on how to use shareholders’ equity to build long term per share value for shareholders. Henry Singleton would be proud of what they have been able to accomplish.

 

But the Fairfax story is still being written. Free cash flow at Fairfax has exploded over the past three years. The size and certainty of future earnings have both markedly improved at Fairfax in recent years. Buffett teaches us that certainty is the key variable to properly value an investment. At the same time, Fairfax’s management team is best in class among P/C insurance companies - measured though the growth in book value per share over the past 5 years.

 

Fairfax continues to trade at a significant discount to P/C insurance peers. Given what we know, this makes no sense. And if we know it, I think it is safe to say that  Fairfax knows it.

 

As a result, like Henry Singleton, it would not surprise me to see Fairfax continue to buy back a meaningful amount of Fairfax’s stock in the coming years. After all, Prem told us what the plan was all the way back in 2017.

 

PS: This post is long. Thanks for hanging in there and making it to the end. As I was writing, it became clear to me that the influence of Henry Singleton on Fairfax goes far beyond just shareholders' equity (issuing stock at a premium valuation and then buying it back at a low valuation). Henry Singleton's influence on Fairfax was likely much bigger - how to structure the company, how to run the operations (focus on cash generation) and how to think about capital allocation (be rational, use all the tools in the toolbox, be creative, go big, don't be afraid to be unconventional etc). And to focus on building long term per share value for shareholders.   

 

 

Looks like Fairfax has repurchased 850k shares in the first 6 months for just shy of $ 1 bln, and now has 22.2 mln shares outstanding. 

 

 

 

 

 

 

 

[villainx]

1 hour ago, Gamma78 said:

Looks like Fairfax has repurchased 850k shares in the first 6 months for just shy of $ 1 bln, and now has 22.2 mln shares outstanding.

 

 

Thank you short report?

[LC]

Carson Block cashing that commission check from Prem as we speak (kidding)  

[cwericb]

Just before we leave the Fibrek situation lets not let the passage of time distort what actually happened. From the Financial Post:

 

Prem Watsa's 'mindboggling' explanation of forestry takeover prompts judge to award shareholders millions 

Testimony by Watsa was so problematic, judge awarded some Fibrek shareholders $13.5 million 

Canadian investor Prem Watsa was “purposely forgetful” and offered a “mindboggling” explanation in court testimony explaining why he backed a low-ball bid for a pulp mill in a sale to Resolute Forest Products Inc., a Montreal judge concluded in the seven-year-old case. 

Testimony by Watsa, chairman and chief executive officer of Fairfax Financial Holdings Inc., was so problematic it helped convince Montreal Superior Court Justice Michel Pinsonnault to award some Fibrek Inc. shareholders $13.5 million (US$10.2 million), plus interest. Fairfax “was in a blatant conflict of interest situation,” the Quebec judge said in his Sept. 26 ruling. 

“Watsa’s testimony was so vague and filled with so many uncertainties, unlikelihood, unsubstantiated denials and contradictions that it is very difficult for the court to give credence to the affirmations and explanations of the witness whose memory appeared to be failing on the most crucial aspects of his testimony,” Pinsonnault said. 

A spokesman for Fairfax disputed the judge’s conclusions, and said the company may appeal. 

“The decision distorts the facts, does not make business sense and unfairly characterizes Mr. Watsa’s testimony,” said Paul Rivett, Fairfax’s president. “All of Mr. Watsa’s statements were true and Fairfax acted throughout with honesty and integrity. We expect that the ruling will be appealed.” 

The case centred around Resolute’s December 2011 offer for Fibrek. Fairfax was the most important shareholder and insider of both Fibrek and Resolute, according to the judgment, having helped both companies survive financial difficulties in 2010. Toronto-based Fairfax agreed to sell its 33 million shares to Resolute for $1 apiece — locking in a price that dissenting shareholders considered too low. The judge considered the fair value of Fibrek shares to be $1.99, and found Watsa’s explanation for accepting less “mindboggling.” 

“It was obvious to the court that the witness was a reluctant witness not pleased to have to testify at the request of the dissenting shareholders’ lawyers who had accused Fairfax of being complicit with Resolute in the abusive hostile take-over bid scheme to the detriment and prejudice of the dissenting shareholders,” the judge said, adding that the court also found “that Watsa often appeared to be on the defensive and when pressed on crucial factual elements, the witness hastily took refuge behind ‘I do not remember’ or the like.” 

Watsa had decided that Fairfax would sell its Fibrek stake in February 2011, but didn’t want to do it on the open market, according to the ruling. So he seized the opportunity in May of that year to sell the stake to Resolute. The judge said the cash price was “of no significance” to Fairfax because it would convert the Fibrek shares into Resolute shares. The other shareholders were bound to a “conveniently” low cash price offered to and accepted by Fairfax, the judge said. 

Bloomberg News 

Doug Alexander 

Published Sep 30, 2019 

 

 

[SafetyinNumbers]

1 hour ago, cwericb said:

Just before we leave the Fibrek situation lets not let the passage of time distort what actually happened. From the Financial Post:

 

Prem Watsa's 'mindboggling' explanation of forestry takeover prompts judge to award shareholders millions 

Testimony by Watsa was so problematic, judge awarded some Fibrek shareholders $13.5 million 

Canadian investor Prem Watsa was “purposely forgetful” and offered a “mindboggling” explanation in court testimony explaining why he backed a low-ball bid for a pulp mill in a sale to Resolute Forest Products Inc., a Montreal judge concluded in the seven-year-old case. 

Testimony by Watsa, chairman and chief executive officer of Fairfax Financial Holdings Inc., was so problematic it helped convince Montreal Superior Court Justice Michel Pinsonnault to award some Fibrek Inc. shareholders $13.5 million (US$10.2 million), plus interest. Fairfax “was in a blatant conflict of interest situation,” the Quebec judge said in his Sept. 26 ruling. 

“Watsa’s testimony was so vague and filled with so many uncertainties, unlikelihood, unsubstantiated denials and contradictions that it is very difficult for the court to give credence to the affirmations and explanations of the witness whose memory appeared to be failing on the most crucial aspects of his testimony,” Pinsonnault said. 

A spokesman for Fairfax disputed the judge’s conclusions, and said the company may appeal. 

“The decision distorts the facts, does not make business sense and unfairly characterizes Mr. Watsa’s testimony,” said Paul Rivett, Fairfax’s president. “All of Mr. Watsa’s statements were true and Fairfax acted throughout with honesty and integrity. We expect that the ruling will be appealed.” 

The case centred around Resolute’s December 2011 offer for Fibrek. Fairfax was the most important shareholder and insider of both Fibrek and Resolute, according to the judgment, having helped both companies survive financial difficulties in 2010. Toronto-based Fairfax agreed to sell its 33 million shares to Resolute for $1 apiece — locking in a price that dissenting shareholders considered too low. The judge considered the fair value of Fibrek shares to be $1.99, and found Watsa’s explanation for accepting less “mindboggling.” 

“It was obvious to the court that the witness was a reluctant witness not pleased to have to testify at the request of the dissenting shareholders’ lawyers who had accused Fairfax of being complicit with Resolute in the abusive hostile take-over bid scheme to the detriment and prejudice of the dissenting shareholders,” the judge said, adding that the court also found “that Watsa often appeared to be on the defensive and when pressed on crucial factual elements, the witness hastily took refuge behind ‘I do not remember’ or the like.” 

Watsa had decided that Fairfax would sell its Fibrek stake in February 2011, but didn’t want to do it on the open market, according to the ruling. So he seized the opportunity in May of that year to sell the stake to Resolute. The judge said the cash price was “of no significance” to Fairfax because it would convert the Fibrek shares into Resolute shares. The other shareholders were bound to a “conveniently” low cash price offered to and accepted by Fairfax, the judge said. 

Bloomberg News 

Doug Alexander 

Published Sep 30, 2019 

 

 

I read that a few years ago and took it under consideration. 

[StubbleJumper]

3 minutes ago, SafetyinNumbers said:

I read that a few years ago and took it under consideration. 

 

And did you think it was "fair" when ORH was bought back at a price that was ultimately 0.95x BV?

 

 

SJ

[SafetyinNumbers]

7 minutes ago, StubbleJumper said:

 

And did you think it was "fair" when ORH was bought back at a price that was ultimately 0.95x BV?

 

 

SJ

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?

[SafetyinNumbers]

5 hours ago, hardcorevalue said:

i can’t imagine selling something that’s undervalued because it’s an ugly chart or vice versa

 

that’s what makes a market i guess.

I should celebrate more people doing it, more money for me if i’m right.

It’s not a judgment on value. It’s a bet on price given human psychology and flows. The beauty is the stop losses means you don’t end up owning losers for too long. It seems like a better way to live. I find owning businesses hard especially if they don’t screen well. 

[FearfulWhenOthersAreGreedy]

On the topic of FFH taking FIH private in my opinion there really is no need for FFH to buyout the remaining shares of FIH, why should they spend their capital on accumulating a larger stake when FIH has cash available and is buying up plenty in the open market, given enough time FFH and any holders of FIH will own an ever increasing stake of the underlying businesses all without laying out any more capital, which should be the point of companies buying back stock not just to prop up the share price. Although I'll rejoice in the short term with an immediate boost in my wealth, its likely best that I just do nothing and with time it can grow while I sit on my hands, watch & wait. 

[Viking]

3 hours ago, StubbleJumper said:

 

And did you think it was "fair" when ORH was bought back at a price that was ultimately 0.95x BV?

 

SJ

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…)

Edited August 2, 2024 by Viking

[petec]

On 8/1/2024 at 2:25 AM, SafetyinNumbers said:

They have a regulatory benefit in the insurance subsidiaries by owning a public company.

 

Why is this, please?

[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?