If the share price closes at $1.60 by the end of this month, which is the end of the current quarter, LUK has to take a $150 million hit to their earnings and I'm sure their investors won't appreciate it. Every .30 drop in FXCM common forces LUK to write off $50M. I think they should just dive in and prop up the price themselves, to prevent this huge hit on their earnings report.
But they can't buy back more shares until the LUK loan is paid off. So hopefully they sell their non core assets soon and use the remaining $65M to cut the float in half.
Their CEO was interviewed over the weekend and here is what he stated, "said that in general, Leucadia aims to own cash-generating businesses to fund new investments. FXCM could potentially be such an asset in the future, if Leucadia chose to turns its rights into equity, he said. “We have the capability of being twenty-plus year investors in FXCM, or any of the other businesses we partner with.”
Once the loan is paid off, LUK is going to turn FXCM into a cash cow. FXCM will end up reinstating the divi and LUK will get a 50% chunk of it, with the rest going to the shareholders, as stated it the agreement. So when he says that he can potentially hold on to the company for twenty-plus years, he means it. That is what they did with Knights Capital, when they got in trouble. This article is in the New York times, if you want to check it out. Once the divi is reinstated, this will easily move to the $8-10 range if current revenue stays steady. So have some patients and it will pay off.
Looks like their remaining non core assets are going to bring in north of $400M. Could be way north, since the CEO mentioned that they are getting offers higher then he expected.
“Our investment in FXCM was structured as a $300.0 million two-year senior secured term loan with rights to a variable proportion of certain distributions in connection with an FXCM sale of assets or other events. These financial instruments are recorded at fair value and, as required, will be marked-to-market each quarter. The largest part of our gain of $686.6 million during the quarter reflects the adjustment to fair value of our rights. We determined fair value with the assistance of a nationally recognized third-party independent valuation firm and it is based on valuation models that are significantly impacted by various inputs and assumptions, including, most significantly, FXCM’s publicly traded stock price and its volatility. As we adjust this fair value each quarter, we anticipate volatility in the FXCM valuation, which could materially impact our earnings in a given period. A $0.30 change in the price of FXCM’s shares (representing about 14% of the price at March 31, 2015), would result in a change of about $51 million in this valuation, assuming no change in any other factors we considered. Please note that from March 31, 2015 through May 7, 2015, FXCM’s share price in fact declined by $0.31 per share. Separately, a 10% change in the assumed FXCM stock volatility would result in a change of about $29 million in this valuation, assuming no other change in any other factors we considered. During the first quarter of 2015, we received $18.6 million of principal and interest payments from FXCM, and $287.6 million remained outstanding under the credit agreement as of March 31, 2015. As of May 7, 2015, we have received an additional $69.3 million, and $228.4 million remained outstanding under the credit agreement. Our January net investment of $279.0 million has yielded us so far cumulative cash of $87.9 million, the $228.4 loan balance and our rights to cash distributions.
Looks like LUK has some kind of incentive in seeing FXCM's share price move higher.
actually, its an article that was just posted. But I don't get something from that article. It states "A 30-cent drop in FXCM’s stock would lead to a $51 million markdown on the value of the investment, Leucadia said. After climbing 33 cents to close at $2.15 Friday, FXCM fell 9.3 percent to $1.95 in extended trading after reporting a $393.3 million net loss from continuing operations in the first quarter."
Why does a fall in the common stock price effects LUK so drastically. I also have to say that someone in FXCM made a really bad deal with LUK, if LUK's value of their loan tripled in a few months.
I'm not going to break out their numbers, but they were really bad Year-over-Year (besides the swiss crash) and this sums it all; "Interactive Brokers’ performance deteriorated considerably driven by a significant rise in expenses along with weak performance of all its segments. The company has been suffering due to intensifying competition and heightened sensitivity to fluctuating volatility with no respite evident in the near term."
Short position dropping fast, while the share price is steady. Shorts won't to hold it down much longer as it gets harder to net share to cover their position.
Just went through the Interactive Brokers report and they are losing clients and business to their competition. Their number one competitor in the US is FXCM. I guess FXCM must be doing something right.
I will take 100% recovery from the Jan meltdown and dilute at $2.25, rather then collect 10 cents on the dollar. As long as the dilution is above my buy-in price of $2, dilute away.
never mind. That was the total amount of the negative balance. I guess both the company and the customer feel $2.25 is the bottom.
They recovered $550,000 from a customer and issued him 559K $2.25 2 year options as part of the deal. It would be interesting to know what this customers negative balance total was.
I guess we just have a difference in opinion on this point. I think the loan to LUK and the convertible Bonds will be paid off within the next three years. If the extreme situation comes up and FXCM is forced to sell their assets, the distribution will be between the common shareholders and LUK. The fees/bonuses the management gets in the case of a sale will count as part of the daily operations expense and the 50/50 split comes after that. The fact that the shorts are covering and don't see any more downside should tell you that the true value of the common is much higher than it is trading right now.
The Bond holders get paid ahead of any split in the asset sales. They are on top of the food chain. So its the bond holders get paid, then the next $600M gets split up between shareholders, management (this part is questionable too and the management could get paid before the split too) and LUK.
There are 47 million shares floating, of which 7M are held by insiders. The shorts added another 11.5M to the float by shorting that much. So the total amount of shares floating/available for sale is roughly 52 million. The shorts are covering at a rate of 250k a week, which is like a company share buyback situation. The shorts are reducing the float, which in turn will make the shares more scares and the share price move higher. So we don't necessarily need a short squeeze to move the share price higher, the slow and steady pace of their covering should accomplish the same thing. So hold on to your shares tight, because the elevator is heading up. All Aboard!!
Open interest on the the Aug $2.50 calls is at 25k contracts, which represent the insurance policy for the shorts and the deadline they expect to cover the majority of their shares.
If the shorts feel there is no more downside and covering, than why are you still here bashing the stock. Or do you have some info the shorts don't?
The short interest dropped another 1/2 Million shares, from 12.1M to 11.6M. That's 1/2M covered in 2 weeks, which is the current pattern. I got to give the shorts a compliment. They are covering significant amount of shares while controlling the share price and not letting it spiral out of control. I also see that they are covering their behinds with the Aug. $2.50 calls, which tells me they are planning to cover most of their position by Aug and let the share price roll, turning their insurance calls into a huge profit.