Anyone else think that ORH is the better deal. It trades at a lower price/book value, has better underwriting standards, and also the investments are run by Hamblin Watsa. As of right now, i think ORH is the better deal, plus it is likely that FFH will buyout ORH in the future. My thoughts.
You are right, I stand corrected. It's to simplify the corporate structure, and save a couple million of annual corporate overheads. Selling a piece of ORH several years ago was really because he needed cash, now there is really no reason for a small piece of ORH to be out there anymore, ala Northbridge.
This is a fantastic deal.
First, they raised 1 Bil at $347. If you look at other companies trying to raise case, they always sell at discount to current market value. Some how, Prem could manage to get the closing price of last Friday. So, there is 0 or minimal dilution.
If Odyssey RE go thru, remember - they followed philosophy similar to Prem - completely unwinding from shorts last November and I tend to believe that their appreciation of book value should be similar to FFH.
5 year down the raod - this is alwys the lookout by Prem, Odyssey should add substantial value to the earning power of FFH. So, this is a long term play. I won't be surprised if we took a small hit to the tune of 2 to 3 % and make up in the long haul with big multiple.
"It's the lowest risk way to lever up a bit for Fairfax. It's not that different from buying back his own shares."
Hijang, given that they sold $1B worth of equity to pay for this ~$1B deal, do you really think they are "levering up?"
I would have liked this deal much more with a smaller/non-existent equity raise.
This is NOT levering up.
>>> you are comparing fairfax's bv of today to odyssey's bv of june 30th <<<
At the end of Q2, FFH's book value was $316/sh, and ORH's was $51.90/sh.
Estimating based on portfolio action since then, FFH's is probably close to $347/sh. Assuming the same percentage increase for ORH, its book value per share should be about $57.50.
These are all estimates but FFH is issuing stock at about book value to buy ORH at about 105% of book value. Mildly dilutive.
But ORH has already popped above the $60 buy price. We will see if FFH will pony up. The higher they pay, the more dilutive it will be.
But why do the deal at all? Is this really the best place in the markets, both stock market and insurance acquisition market, that FFH can spend $1 billion?
the 1.16x bv that fairfax is paying for odyssey is based on odysseys bv on june 30th . so using the numbers from june 30 fairfax is issuing shares at 347 wich is 1.1 times book to buy odyssey at1.16x hardly dilutive. you are comparing fairfax's bv of today to odyssey's bv of june 30th
Why is this in the best interest of FFH? They have already priced their equity offering at $347/sh which is probably pretty close to today's book value. They are paying a premium to book for ORH, the market thinks it will be even higher than the $60 they have already bid.
This is diultive to FFH -- they are selling stock at book to buy a majority-owned subsidiary at above book. Why is this a good idea?
Glad to see my crystal ball is working good. Well it looks like Fairfax agreed with me since they are issuing stock to pay for ORH. They wouldn't do that unless they thought ORH was a better value than FFH.
Still that is a pretty weak premium when you factor in that the book value is much higher at orh since the end of Q2 after their equity investments have rallied alot. the real book is probably closer to $60 a share. Looks like Prem is gonna steal this one from ORH shareholders for right about 1 times book.