Berkshire also has fine partnerships with Mars and Leucadia, and we may form new ones with them or with
other partners. Our participation in any joint activities, whether as a financing or equity partner, will be
limited to friendly transactions.
‹ In October, we contracted to buy Van Tuyl Aut
What about the over 100 million of stock compensation in 2014? I think Handler's 2 million forfeit is peanuts. To put it in perspective, net comprehensive income was 100 million. Of course they didn't pay tax so let's say 200 million. stock awards was 50% of net comprehensive cashflow or around 33% if you add back depreciation which of course you can't add back in full. This is insane levels of awards, on top of compensation expense I might add for really bad operating results. Sure, they say they expense the award in advance. How nice. I wish my boss would give me 5 or 10 years of salary today. Somehow I think my promise to work really hard won't be quite so easy when I am spending all that money that I was given in advance!
In April 2011, Jefferies purchase Bache from Prudential, Rich Handler and Brian Friedman were/is
CEO and Chairman of Executive Committee at Jefferies. In November 2012, Leucadia purchase
Jefferies. Rich Handler became CEO of Leucadia and Brian Friedman became President of
Leucadia. It was term by CNBC as "Leucadia's Upside-Down Acquisition of Jefferies".
I guess today is mushroom day for you.
Mr. Handler and Mr. Friedman does not deserve a bonus let alone declining one. They spent $450 million purchasing Bache Commodities in 2011, and less than 4 years later Jefferies is looking for strategic
alternatives for the business. Their job performance is inconsistent over the past 5 years (Jefferies and
Leucadia). Let's not give credit when it unwarranted.
Received details the other day. If you owned JEF shares you are included in the lawsuit. My experience with these has been that one receives a check from $25-50 but we'll see.
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Vanguard Group - 23-1945930
2. CHECK THE APPROPRIATE [LINE] IF A MEMBER OF A GROUP
3. SEC USE ONLY
4. CITIZENSHIP OF PLACE OF ORGANIZATION
(For questions 5-8, report the number of shares beneficially owned by each reporting person with:)
5. SOLE VOTING POWER
6. SHARED VOTING POWER
7. SOLE DISPOSITIVE POWER
8. SHARED DISPOSITIVE POWER
9. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
10. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES CERTAIN SHARES
11. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 9
12. TYPE OF REPORTING PERSON
Yes, that's been my view since the merger was announced. "Old LUK" is gone; "New LUK" is "Old JEF" with some legacy "distraction" investments that should be monetized when valuations are favorable. Like yesterday, if not today. (Team Handler did the right thing by stopping the bleed in Sangart and some of the ill-timed "energy" plays -- which were really "political subsidy" plays.)
It's a question of size. For LUK to earn even 10% return on equity (including the goodwill they paid for Jefferies) they have to earn close to 1.1 billion per year. I think Jefferies generally is pushing half of that so it's interesting to see the LUK half having problems generating the other 500m.
I think they are transforming LUK to look something like Goldman, i.e. Jefferies IS Luk, LUK may for all intends be renamed Jefferies and LUK investments are private equity investments of Jefferies. But this may take time.
I'm not arguing that these guys are sleeping in homeless shelters. But they deserve some credit -- this year -- for declining bonuses during a period of extended LUK shareholder pain and suffering.
Your example is mixing apples and oranges. If JEF has a killer year, and the JEF management team gets paid for killing it, I have no problem with that. If LUK's other investments underperform, and LUK shares continue underperforming, then LUK's senior execs (Handler and Friedman) should continue to suffer along with shareholders.
Longer-term, maybe LUK should spin out 20% of JEF, and then JEF management can be compensated in shares that track the underyling business. I've always viewed this as a long-term option; LUK needs to own 80% of JEF to consolidate for tax purposes, but all stakeholders might benefit if JEF floated its shares again.
Let's use an example.
Last year, the performance target for Jefferies was something like 15% pre-tax return on tangible equity or about 500. For this performance, they would get a pretty large payout. In fact, last year, they failed this benchmark but was not low enough relative to it to reduce their bonus to zero...so they still got paid for missing it.
BUT, let's put this in perspective. Let's say Jefferies has an AMAZING year and makes 1 billion dollars pre-tax. They would get paid a ton of money. Yet...for Leucadia as a whole, which is what shareholders need to measure, we are believe it or not below the long term average of US corporate business which is 11-12% after-tax net return on invested capital. In fact, even in an amazing year, LUK will do no better than average and yet they would get paid handsomely. Something is wrong with this picture. They get paid for Jefferies which is correct but would profit when LUK shareholders do just average. Yes, Handler has 250m in shares but he got them for free over the years in lieu of cash compensation bonuses. In effect, this is money prepaid for performance yet to be delivered.
Grey Owl Capital Management: Portfolio Adjustments during the Second Half of 2014
There was quite a bit of transaction activity in the second half of the year. We spent the bulk of last quarter’s letter discussing investment philosophy and did not have the opportunity to comment on individual investments at all. Therefore, six months of transaction rationale follows.
We sold our entire position in Enbridge (ENB) in July at just under $50/share. ENB is a wonderful collection of midstream energy assets (steady, toll-booth like businesses that for the most part are not tied to short-term commodity prices or volumes) and has a massive ($20B+) pipeline of new projects. Yet, at $50/share and ~30x next year’s earnings, the stock offered little margin for error if funding or other issues jeopardized the build-out of these new assets. Our return between our November 2012 acquisition and July 2014 sale was approximately 33%.
In August, we made what will likely be the most important transaction of the entire six month period, adding to our stake in Leucadia National Corporation (LUK). The initial position was established in late 2012 when we purchased stock in the investment bank Jefferies. This first purchase occurred just after the announcement that LUK would merge with Jefferies, acquiring the 71% of Jefferies it did not already own. The deal economics were such that purchasing Jefferies stock before the merger’s consummation let us “create” a LUK share at a price which was lower than the then current quote. Both the initial purchase and our recent purchase were acquired at a meaningful discount to (then) book value. Book value has grown modestly since.
See full PDF below.
I would add the amount they made since the merger and average it out in relation to LUK's total ROE. If you made a lot of money in prior periods and then decline in one period, you still got overpaid but now you have the luxury to decline and make it sound like you won't stand for such poor performance. The cash is already in the bank (or maybe the mansion).
Credit to both those guys. I've never understood how Comp Committees can rationalize big bonus payments to execs that drive negative stock performance. Look, I understand that the CEO/CFO role at a large public company is intense, difficult and complex. But ultimately, exec comp should reflect investment performance, i.e., returns to shareholders. LUK has been miserable.
Handler and Friedman are truly a changing of the guard. Cumming & Steinberg would have lobbied for, and accepted, a $25 million stock bonus for their role in a couple deals back in the '90s and '80s.