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FFH 13F for 6/30/09


WideMoat
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Here are only what I would consider the significant changes:

 

Dell up by 10.9M shares to 34.8M shares.

GE up from 10.2M shares and 2.6M options to 18.3M shares.

Odyssey RE down to 37.8M shares from 42.4M.

Pfizer down to 241K shares from 16.3M shares.

Sandridge Energy up from 882K shares to 1.24M shares.

 

I suppose the Odyssey move is most surprising to me.  I am intrigued by the Dell move; they are the low cost provider, so there are moat benefits there.  I wonder how sustainable though?

 

http://www.sec.gov/Archives/edgar/data/915191/000095012309035366/o56652ffe13fvhr.txt

 

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Interesting, regarding ORH. Share buybacks at ORH at the same time as sales by the FFH. Raising cash and an a bond offering at FFH.

 

I thought they had to file an amended 13-D as well.

 

On another note, David Winters has discovered Fairfax Financial.

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The 13F has to be misleading ...

 

FFH's quarterly report (p.39) affirms that they increased their relative ownership of ORH to 71.9%, this as result of ORH share buybacks.    With ORH having 58,980,352  shares outstanding as of June 30th, this keeps FFH at the 42.4M shares outstanding.

 

http://www.fairfax.ca/Assets/Downloads/2009Q2.pdf

http://phx.corporate-ir.net/phoenix.zhtml?c=129394&p=irol-newsArticle&t=Regular&id=1314639&

 

 

 

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Trying to understand this reduction in shs.   FH reduced shs. held by 4.6 mil. to about 65% of outstanding after  ORH bought back 1.732 mil shs to 7/29.

If they sold on open market they sold below bv of 3/31 and way below 6/30 bv which is against their nature.  Why sell below bv?  

So is this an accounting move between sub and parent??  

And if not an accounting move, it sure blows the hell out of the theory that they are going to buy back ORH

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The 13F has to be misleading ...

 

FFH's quarterly report (p.39) affirms that they increased their relative ownership of ORH to 71.9%, this as result of ORH share buybacks.    With ORH having 58,980,352  shares outstanding as of June 30th, this keeps FFH at the 42.4M shares outstanding.

 

http://www.fairfax.ca/Assets/Downloads/2009Q2.pdf

http://phx.corporate-ir.net/phoenix.zhtml?c=129394&p=irol-newsArticle&t=Regular&id=1314639&

 

 

 

 

 

:)

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I think they would have already had to file a 13G or form 4 if they sold ORH shares. Maybe they just moved them around?

 

This is good news, right?

 

It looks like ORH has been buying shares on the open market and also bought a large chunk of shares from the Holdco (or whichever FFH subsidiary owns ORH shares).  ORH will cancel all those shares. 

 

This gives FFH cash to use at whichever entity "sold" the shares to ORH.  And it also strengthens the case that FFH is going to buy ORH because why would they sell the shares?  They sold them because they know they're just going to buy back the company soon . . .

 

Am I wrong?

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I think they would have already had to file a 13G or form 4 if they sold ORH shares. Maybe they just moved them around?

 

This is good news, right?

 

It looks like ORH has been buying shares on the open market and also bought a large chunk of shares from the Holdco (or whichever FFH subsidiary owns ORH shares).  ORH will cancel all those shares. 

 

This gives FFH cash to use at whichever entity "sold" the shares to ORH.  And it also strengthens the case that FFH is going to buy ORH because why would they sell the shares?  They sold them because they know they're just going to buy back the company soon . . .

 

Am I wrong?

 

Why would they sell them to ORH now and buy them back higher in a few months?

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Well this is a conundrum.

 

No ownership change disclosed in the SEC filings.

 

and

 

The just released 13F-HR for Fairfax lists securities held as of June 30, 2009. Well, Fairfax's 2nd Quarter Interim Report showed no disclosures about any sales of ORH as of the close of June 30th 2009. Guess we have to give IR a call.

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Well, I'm quite confident FFH didn't sell any ORH!

 

So my speculation is a couple of ideas:

 

1. I remember ericopoly posting that the 2008 FFH AR stated that runnoff (...within TIG) owned 17.8% of ORH. Perhaps FFH had to properly document this, and therefore changed the 13-F to show the lower holding (...as TIG owns the rest).  The problem with this thesis is that the numbers still don't jive, because reducing 42.4M to 35.8M shares doesn't equal 17.8%.

 

OR

 

2. FFH Holdings swapped about 4.6M shares to another subsidary for cash (i.e.: book value of ORH shares for cash). This will boost the cash at holding company by approx $240M.  So, the additional $240M from the ORH share swap plus the $400M from the pending debt securities sale and another $300M of existing holdco cash should be enough to buy the balance of the 15.5M shares of ORH between $60-$65 at FFH holdco. This will still leave approx $500M cash at holdco through Q3 and Q4, and holdco then can receive dividends from the subs in the New Year to replenish their holdco cash values back to $800M to $1B.  

 

The end result will be FFH would own a large portion of the ORH shares, TIG would own some, and another sub (..or two) would own some ORH.

 

....It's all coming together :-)

 

cheers,

Vinay

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I think they would have already had to file a 13G or form 4 if they sold ORH shares. Maybe they just moved them around?

 

This is good news, right?

 

It looks like ORH has been buying shares on the open market and also bought a large chunk of shares from the Holdco (or whichever FFH subsidiary owns ORH shares).  ORH will cancel all those shares. 

 

This gives FFH cash to use at whichever entity "sold" the shares to ORH.  And it also strengthens the case that FFH is going to buy ORH because why would they sell the shares?  They sold them because they know they're just going to buy back the company soon . . .

 

Am I wrong?

 

Why would they sell them to ORH now and buy them back higher in a few months?

 

I was thinking that selling ORH shares back to ORH to cancel would be a way to reward the remaining 30% of ORH shareholders in exchange for having cash available to deploy at the holdco level.  Part of the whole "fair and friendly acquisitions" thing.

 

But it's hard for me to get my head around the numbers.  Wouldn't the number of shares in the 13-F remain the same if FFH had just moved shares around from 100% owned entites? 

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txlaw  ... FFH couldn't have sold/transferred them to ORH without changing their ownership %, because they don't (yet?) own 100% of ORH ... it would have to have been a transfer between 100% entities to keep the 42.4M rolled up ... no?

 

Another thing I'm confused about.  

 

Doesn't the 13-F show holdings as of the date it was signed?  If so, then it could be the case that ownership percentage has changed because the 72% figure was as of the end of Q2.

 

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I thought that this 13-F focused only on the US insurance subs and holding companies.  If FFH Holdings swapped the 4.6M ORH shares to a non-US insurance sub/holding company (e.g.: NB, Advent, FFH Asia companies, etc), then the 13-F wouldn't show the holding.  Similar to the notion that this 13-F doesn't show Torstar, Brick, and other companies as they are likely held within NB.

 

cheers,

Vinayd

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I thought that this 13-F focused only on the US insurance subs and holding companies.  If FFH Holdings swapped the 4.6M ORH shares to a non-US insurance sub/holding company (e.g.: NB, Advent, FFH Asia companies, etc), then the 13-F wouldn't show the holding.  Similar to the notion that this 13-F doesn't show Torstar, Brick, and other companies as they are likely held within NB.

 

cheers,

Vinayd

 

I think the reason that Torstar, Brick and the like aren't shown in the 13-F is because they aren't listed on a U.S. exchange, not because they're held in a Canadian subsidiary.

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I thought that this 13-F focused only on the US insurance subs and holding companies.

 

You may be on to something there, Vinyard.

 

The 13-F doesn't show Fairfax holdings of non-U.S. listed company shares; however, I really don't know if it shows the U.S. equity investment holdings of 100% owned non-U.S. companies. Perhaps it only shows the equity holdings of 100% owned U.S. listed companies.

 

For example, it definitely doesn't show Torstar in FFH's 13F-HR.

 

And if Torstar were a U.S. company and was 100% owned by FFH (lets pretend) and Torstar held an equity investment in ORH, then that ORH investment would show up in FFH's consolidated 13F-HR.

 

But, if Torstar was 100% owned by Fairfax and Torstar owned shares in ORH, would that ORH holding show up in FFH's 13F, given that Torstar is actually a non-U.S. listed company? I really don't know.

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I thought that this 13-F focused only on the US insurance subs and holding companies.

 

You may be on to something there, Vinyard.

 

The 13-F doesn't show Fairfax holdings of non-U.S. listed company shares; however, I really don't know if it shows the equity investment holdings of 100% owned non-U.S. companies.

 

Like, it definitely doesn't show Torstar in FFH's 13F. That I'm certain.

 

But, if Torstar was 100% owned by Fairfax and Torstar owned shares in ORH, would that ORH holding show up in FFH's 13F, given that Torstar is non-U.S. listed company? I really don't know.

 

I'm pretty sure that FFH would have to report the U.S. securities held at a wholly owned, unlisted foreign subsidiary because FFH exercises "investment discretion" over the 13-F securities held at the foreign subsidiary. 

 

But I don't want to give anyone the impression that I know anything about securities law.  Just based on what I found at the SEC website and at the University of Cincinnati's website ("Securities Lawyer's Deskbook").  See http://www.sec.gov/divisions/investment/13ffaq.htm , http://www.law.uc.edu/CCL/34ActRls/rule13f-1.html .

 

No legal advice here :)

 

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I think they would have already had to file a 13G or form 4 if they sold ORH shares. Maybe they just moved them around?

 

This is good news, right?

 

It looks like ORH has been buying shares on the open market and also bought a large chunk of shares from the Holdco (or whichever FFH subsidiary owns ORH shares).  ORH will cancel all those shares. 

 

This gives FFH cash to use at whichever entity "sold" the shares to ORH.  And it also strengthens the case that FFH is going to buy ORH because why would they sell the shares?  They sold them because they know they're just going to buy back the company soon . . .

 

Am I wrong?

 

Why would they sell them to ORH now and buy them back higher in a few months?

 

I was thinking that selling ORH shares back to ORH to cancel would be a way to reward the remaining 30% of ORH shareholders in exchange for having cash available to deploy at the holdco level.  Part of the whole "fair and friendly acquisitions" thing.

 

But it's hard for me to get my head around the numbers.  Wouldn't the number of shares in the 13-F remain the same if FFH had just moved shares around from 100% owned entites? 

 

Another way to look at it would be that FFH has decided to partially finance the ORH acquisition by selling ORH shares below intrinsic value to 30% ORH holders rather than by borrowing additional money from the credit markets, where the benefits would accrue to non-FFH and non-ORH shareholders. 

 

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So far my investigation on the issue is leading me to TIG Insurance Company. Here are the numbers:

 

December 31, 2008:

 

Odyssey Re had 60,242,949 shares outstanding and Fairfax owned 42,399,400 in the following fashion:

 

"Fairfax owns 70.4% of our outstanding common shares, directly (0.3%) and through its subsidiaries: TIG Insurance Group (41.5%), TIG Insurance Company (7.8%), ORH Holdings Inc. (10.3%), Fairfax Inc. (2.3%) and United States Fire Insurance Company (8.2%)."

 

June 30, 2009:

 

Odyssey Re had 58,980,352 shares outstanding and Fairfax owned 37,798,800.

 

Applying the same percentages, TIG Insurance Company would have held 4,698,950 at December 31 and 4,600,467 at June 30. The difference in the 13-F between December 31/March 31 and June 30 is 4,600,600 or almost identical to what TIG Insurance Company should have held as of June 30.

 

Based on the percentages, United States Fire Insurance Company which is a subsidiary of Crum & Forster is close, but not "identical" to the change that we have seen on the 13-F and Crum & Forster in their June 30 10-Q indicates that they still own the shares of Odyssey Re.

 

I need to find out more on what could be going on however, you guys are correct. Odyssey Re shares cannot be sold without appropriate disclosure. Here is what Fairfax had to announce in 2006 when they needed cash before selling any ORH shares (they were not shares issued by Odyssey Re, but simply sold by Fairfax to the public):

 

http://www.fairfax.ca/Assets/Downloads/Press/fpr2006-11-17.pdf

 

The stuff above is just another reason to integrate Odyssey Re fully within Fairfax. Here is more "spaghetti" for you:

 

"On June 4, 2009, the Company purchased additional shares of Fairfax Asia Limited (“Fairfax Asia”) at a cost of $1.0 million. For common stocks, at equity, as of June 30, 2009, the relative ownership held by the Company was 13.0% for TRG Holding Corporation (which is 100% owned by Fairfax) and 26.2% (economic) for Fairfax Asia (which is 100% owned by Fairfax)."

 

"As of June 30, 2009, Fairfax owned 66.7% of the common stock of Advent, including 14.5% owned by the Company."

 

Cardboard

 

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Thanks Cardboard, that definately helps!

 

O.K. so let's speculate that ORH won't be taken over then...

 

1. Andy felt that buying another 10% of ORH public shares in 3 months (1.7M shares of approx 17.2M available) was a just a good deal and....

 

2. Paul and Brad needed to shift $240M worth of ORH shares to some other subs just because they could OR they really needed to shore up some massive adverse development at one of the non-US subs, but decided not to disclose this in the Q2 or conference call and....

 

3. Prem felt that $880M of holdco cash was just a bit too light, and needed to boost it to $1.3B in the worst credit environment since WWII so they can cover $180M of debt 4 years from now....

 

OR

 

They've collectively decided that it's prudent to take $500M - $1B flyer of (25% of shareholder equity BTW) of their company on a Chinese acquisition

 

OR

 

They are buying the rest of ORH.

 

...c'mon!

 

 

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