Fairfax Financial Holdings Limited Announces C$431,000,000 Bought Deal Financing

[indythinker85]

http://online.wsj.com/article/PR-CO-20131106-907733.html?dsk=y

[obtuse_investor]

I am not enthused about this development. Does the board think that this is:

 

A) an opportunistic sale of stock that management believes is trading above intrinsic value?

B) an attempt to bolster the balance sheet as hedges and blackberry deal eat into holding company cash reserves?

C) Both of the above.

D) Something else entirely.

 

 

[Alekbaylee]

Hmm... not sure we'll get a dividend in January... ::)

[Alekbaylee]

I am not enthused about this development. Does the board think that this is:

 

A) an opportunistic sale of stock that management believes is trading above intrinsic value?

B) an attempt to bolster the balance sheet as hedges and blackberry deal eat into holding company cash reserves?

C) Both of the above.

D) Something else entirely.

 

Would say it's B...

[SharperDingaan]

Given the size, the price, & the fact that they could have easily issued low cost debt instead

... most would expect that there is more to come.

 

SD

[Packer16]

Could this be to finance the Blackberry debt?

 

Packer

[rkbabang]

I am not enthused about this development. Does the board think that this is:

 

A) an opportunistic sale of stock that management believes is trading above intrinsic value?

B) an attempt to bolster the balance sheet as hedges and blackberry deal eat into holding company cash reserves?

C) Both of the above.

D) Something else entirely.

 

B

 

[Alekbaylee]

Could this be to finance the Blackberry debt?

 

Packer

 

Looks like it is. Prem has repeated numerous times that he wanted to keep at least $1 B in cash.

With his new "investment" in BB and the hedges not "cooperating", he would have found himself below his own threshold and the rating agencies could have downgraded FFH.

[SharperDingaan]

Hopefully just another book of business in a field that they actually know something about; but the meter is running.

 

[StubbleJumper]

Great.  Prem fell in love with RIM and can't get out, so now he must dilute existing shareholders while he tries to extract himself from this tar-baby.

 

It's one thing to put another $250m at risk for the debs, but subsequent dilution is brutal.

 

SJ

[mcliu]

I wonder how the underwriters will sell this stuff now that share prices are below the bought deal..

[A_Hamilton]

I wonder how the underwriters will sell this stuff now that share prices are below the bought deal..

 

Gross proceeds of CAD $431 million. You don't know what fees they are getting...

[Alekbaylee]

Although I give Prem a 50-50 chance of winning the BB fight, I find almost funny that every time we think we've seen the worst or got out of the woods "something" comes and knocks FFH down again.

Is there any insurance coverage against these "events" - LOL!

Seriously, we've seen them all : from TIG to ABH to FBK to the hedges (although this one can still pan out) to BB.

Prem, my friend, your faithful shareholders are tired of this bumpy ride.

They want a smooth ride, at least for a while, whilst they mend their sore butt.

[giofranchi]

A lot of bad news these days... :(

 

giofranchi

[Guest valueInv]

I am not enthused about this development. Does the board think that this is:

 

A) an opportunistic sale of stock that management believes is trading above intrinsic value?

B) an attempt to bolster the balance sheet as hedges and blackberry deal eat into holding company cash reserves?

C) Both of the above.

D) Something else entirely.

 

Would say it's B...

 

If the RIM investment is such a small part of their portfolio, why do they need to raise cash?

[nestorius]

I wonder how the underwriters will sell this stuff now that share prices are below the bought deal..

 

Gross proceeds of CAD $431 million. You don't know what fees they are getting...

 

A single institution is purchasing 30% of the $431mm (presumably at the $431/share), so only 700,000 shares to be sold to the public where the brokers are actually taking price risk.

 

On the public tranche there is a 4.0% fee, and on the committed inst'l tranche there is a 1.0% fee. So total fees between the two tranches will be $13.4m, or roughly $19/share of fees on the public risk tranche. So the brokers' "cash breakeven" price on the shares is around $412/share.

[txitxo]

A lot of bad news these days... :(

 

giofranchi

 

  And there may be more to come...One of the reasons why Prem Watsa may want to raise cash now is because he sees something very bad coming down the road...remember that practically all the statistical indicators for the US stock market say that there is a high risk of crash.

[txlaw]

Hey, at least they're selling shares at fair value -- maybe even at an overvalued price?

[Guest wellmont]

  And there may be more to come...One of the reasons why Prem Watsa may want to raise cash now is because he sees something very bad coming down the road...remember that practically all the statistical indicators for the US stock market say that there is a high risk of crash.

 

he sees something? lol. the whole discussion the last few days has been about how he missed 4 years of bull market. he has been seeing something "very bad" for 4 years now. Did we not learn anything from this entire discussion? He's raising cash because he is investing in bbry. And there is no statistical indicator for US market that says there is a high risk of a crash. none. oh and one last thing. There is no deflation. Inflation is baked into our system.

 

ps: perspective from a non owner: some of the fairfax shareholders are a "wimpy" bunch and are Short Term investors. pw is not going to give you a smooth ride. but he will get you to your "destination" in style. :)

[txitxo]

And there is no statistical indicator for US market that says there is a high risk of a crash.

 

Wellmont, I was slowly selling my FFH position (bought at an average of ~370$) because I want to buy European stocks, which are incredibly cheap. So I don't plan to be a FFH long-term holder. All this business with BBRY is a short-term bummer, but it doesn't change at all my opinion about Prem Watsa. Like I said in a previous message, if you do cigar-butt investing, a significant fraction of the companies will tank. It is unavoidable, and the focus should be about having good average returns over the long term. And he has amazing numbers in the long term.

 

  Regarding PM macro bets, and statistical indicators, we have talked here many times about the Shiller CAPE, which stands at 24.4 now, almost 50% higher than the historical average, and a total market cap /GDP, which at 113% is at the same level it was in 2007. You could also have a look at the margin debt levels, almost at historical maxima, or the Q-ratio of Spitznagel.

 

  Fed or no Fed, there is going to be a very nasty crash in the US, probably similar or perhaps worse than the last one. But we don't know when it is going to happen, whether this year, or the next, or the one after that. And therefore people who warn about it may still look like idiots for some time.

 

 

 

 

[Guest wellmont]

right I agree 100%. Nobody knows when it is going to happen. That makes it Unpredictable. Right? So those "indicators" are useless as predictors of market crashes.

[Guest 50centdollars]

http://seekingalpha.com/article/1811662-fairfax-financial-holdings-limited-the-investment-philosophy-of-prem-watsa

[Alekbaylee]

he sees something? lol. the whole discussion the last few days has been about how he missed 4 years of bull market. he has been seeing something "very bad" for 4 years now. Did we not learn anything from this entire discussion? He's raising cash because he is investing in bbry. And there is no statistical indicator for US market that says there is a high risk of a crash. none. oh and one last thing. There is no deflation. Inflation is baked into our system.

 

ps: perspective from a non owner: some of the fairfax shareholders are a "wimpy" bunch and are Short Term investors. pw is not going to give you a smooth ride. but he will get you to your "destination" in style. :)

 

Kind words. What a true gentleman!

[Guest wellmont]

he sees something? lol. the whole discussion the last few days has been about how he missed 4 years of bull market. he has been seeing something "very bad" for 4 years now. Did we not learn anything from this entire discussion? He's raising cash because he is investing in bbry. And there is no statistical indicator for US market that says there is a high risk of a crash. none. oh and one last thing. There is no deflation. Inflation is baked into our system.

 

ps: perspective from a non owner: some of the fairfax shareholders are a "wimpy" bunch and are Short Term investors. pw is not going to give you a smooth ride. but he will get you to your "destination" in style. :)

 

Kind words. What a true gentleman!

 

Did you say this to Parsad? Because he was actually way more critical of wimpy ff shareholders than I was. My guess is....no. You thought you found an "easier" target.

[Alekbaylee]

he sees something? lol. the whole discussion the last few days has been about how he missed 4 years of bull market. he has been seeing something "very bad" for 4 years now. Did we not learn anything from this entire discussion? He's raising cash because he is investing in bbry. And there is no statistical indicator for US market that says there is a high risk of a crash. none. oh and one last thing. There is no deflation. Inflation is baked into our system.

 

ps: perspective from a non owner: some of the fairfax shareholders are a "wimpy" bunch and are Short Term investors. pw is not going to give you a smooth ride. but he will get you to your "destination" in style. :)

 

Kind words. What a true gentleman!

 

Did you say this to Parsad? Because he was actually way more critical of wimpy ff shareholders than I was. My guess is....no. You thought you found an "easier" target.

 

I don't think anyone here finds that you're an "easy" target, certainly not me.