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Fairfax premium


Guest Dazel
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This sounds like a broken record of course to the board...but are we finally going to get the premium to book value that Fairfax deserves? Leucadia's premium is off the charts as it is known as the "mini Berkshire", Markel has had a massive premiun which has been discussed here. As Phillip Fisher stated "there is nothing quite like your company being reappraissed by the market and given a premium for its potential." Are we on our way? Of course it is speculative and everyone here knows the intrinsic value of Fairfax is multiples of where it trades no matter what metric you use. You have to love Leucadia and we have made gobs of money on their backs (thanks Steinberg and Cummings) however after comparing Fairfax to Leucadia who have roughly the same market caps and debt. There is no contest. We have sold all of our Leucadia and opted for Fairfax. The market has not figured this out yet.

 

I propose an end game to the constant undervaluation. The market has used a sum of the parts to evaluate Fairfax. A liquidation value ie ORH is worth amount X add to the rest and there is your value. The market has not put forward multiples on ORH or Fairfax. The end game lies with Orh...The board has done an excellent job detailing the value of ORH. The amount of $8 billion was used in an earlier post...whether it is 4,5,6,7, or $8 billion. The value of ORH reflects the value of Fairfax. They are dragging each other down...Fairfax now has the capability of taking out ORH. In my opinion they have not had this opportunity before. They have not had the capital in the past. So how does this change things?

 

ORH has constantly traded below book value as has Fairfax. The market will now realize that if ORH trades here for a period of time it will be taken out by Fairfax. So if it remains here Fairfax wins they get to buy it out at a discount and they will reap the intrinsic value of the future. When the market realizes that Fairfax is financially capable of taking out ORH they should be buying the shares (we are) and eventually will create a premium to book value. Fairfax wins here as well as their book value rises with ORH's share price. My opinion is not worth much but I will put my mouth where my money is and say that Fairfax and ORH are going to get the multiples they deserve very soon. As everyone knows we own FFH nad ORH.

 

Dazel.

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  • 4 weeks later...

 

It looks like Prem listened  to my post on August 15th! I can retire on that call! i will not of course. We sold out of ORH yesterday. We think that our thoughts of August 15th remain correct. Fairfax will not over pay and they will have the billion in cash whether they buy or not (they might be better off not buying they made half a billion yesterday in book value)...they will buy any shares that will be tendered for cash..and ORH will trade at a premium in the market based on the theories of my last post.

 

congrats all that put their money where their mouth is.

 

Dazel.

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