They can't do that. AIG would need 80% of a controlled corporation (in this case, AER) to do non-taxable spin off. It could do a taxable distribution. Or it could package AER and some other assets into a newco, and distribute the newco. But my guess is that AIG will just sell down its AER position over time (in a series of secondary offerings).
I was expecting Team Handler to dispose of LUK's "legacy" businesses over 12-36 months. First, they shut down the Sangart operation (thankfully for LUK shareholders). Now they've sold off the Biloxi casino at a small, underwhelming gain. Stay tuned for more to come. All these random legacy businesses are a drag on management energy and focus; we need Team Handler to focus on running the underlying securities business, which has been uninspiring in 2013 (to say the least).
Although I've been disappointed with FLY management, my introduction to FLY got me into the sector and into AER shares. Unfortunately, FLY is my biggest position by cost -- wish it were AER! But great news for AER and its shareholders. Great management team. Hopefully, the FLY board of directors will pay attention to the relative strengths of an internal management team (vs the FLY "outsourcing" model).
Check out SeekingAlpha for articles on CWGL. There have been a couple discussing this issue (valuation of the land).
I think my original point was that they sold roughly 300 aircraft for a total gain of roughly $300m. I'm sure the gain/loss varied by aircraft (bigger gains and losses on some, smaller gains and losses on others).
My point was that, based on the historical results, BV is not understated by 20%. I think that you're making a different point; I'm not arguing with your math, but my point is conceptual, not computational.
My view -- there is definitely potential for consolidation, but that doesn't mean that the players will consolidate. As typical with public companies, there is a tension between the managers (who want to keep their fiefdoms and expand their comp) and shareholders. It would take a very strong/independent board of directors to push for a merger, when senior execs will become redundant.
Within the past five years? AER acquired Genesis, which itself was a spinoff from GE/GECAS. I think that there was a big RBS deal in early 2012. You can probably dig up more by simply googling the key terms.
I'm a long-time LUK shareholder, and thus now a CWGL shareholder.
My wife and I went up to the Seghesio facility last week (Healdsburg, CA). We've been wanting to do the food and wine pairing for some time. I finally got us a reservation; had to reserve a few weeks in advance, which is always difficult with busy schedules.
I strongly recommend a trip if you get out to the Bay area. As a shareholder, you qualify for the 20% discount on the event and some of the wines. The food was terrific -- 9s and 8s across the board. The wines were generally good; I'd never had such good zinfandels.
We also got a quick tour of the fermentation warehouse and some background on the Seghesio business. The "guide" basically said that Crimson's (Leucadia's) purchase had not changed the culture of the business. The grandson of the founding couple is still the head honcho. Overall, seems like a solid operation; clearly focused on the "premium" space, which will limit the scalability of the business. But investors are aware of that fact.
At this point, it's beating a dead horse. But I wonder if the SO was driven by some technical covenant issues with the debt. The debt structure is complicated, and it would take some time to work through the potential issues.
Maybe they had a big deal that fell apart. Otherwise, we're all just left scratching our heads ... feels like a seriously incompetent move all the way around (BBAM management, Board of Directors, underwriters).
Some quick notes from the call:
- A320 lease rates are "trending up" (for mid-life aircraft; 2002-06 vintage) (FLY owns 26)
- "surge in demand" for Boeing 737-800s (FLY owns 44 737s; I'm not positive about the mix)
- management expects 10-15% growth in 2014 off $3.0 billion base; so $300-450 million
- thus far in 2013, FLY has closed 10 purchases and committed to six additional for $650 million in total growth
- thus far in 2013, FLY has sold 10 aircraft for $104 million; total gain $6.3 million
- interest expense decreased 17% compared to Q3 2012; they have been working hard to re-align the debt structure over the past 12 months
- on that theme, net leverage is down to 2.7x (obviously, thanks in large part to a dilutive SO)
- BBAM figurehead Barrington touched on the dilutive SO as follows:
"When deployed in aircraft acquisitions, the capital raised in the share placement will be accretive to the per-share earnings and cash flows of business. And while dilutive to the book value of the business on day one, from the compound returns on this invested capital over time, we except the [placement] to be accretive to the per share book value of the business over the medium-term."
Although I'd have to research further, my sense is that exporting is not part of NB's business model. NB earns profits from processing beef for local consumption. If you want to replicate that overseas, you'd have to establish processing plants overseas (buy or develop), establish relationships with local (e.g., Asian) farmers OR import from the United States, and then process the local/imported beef.
My understanding is that NB's margins are suffering, because the U.S. cow herd is at a record low inventory, and beef prices are historically high. Beef exports might actually hurt NB, because it's a "domestic" business, and exports would pressure the price/head in the U.S. market.
Over time, the domestic cattle market should re-balance, and at that point, NB should do better. Until then, it's running positive cash flow, which is better than Sangart!
Another underwhelming quarter. I suppose that the legacy investments were decent, but nothing exciting. Meanwhile, Jefferies (the 800-pound gorilla) was awful, and we're starting to see the floodgates open with equity comp to Jefferies employees ($30m of share-based comp in the quarter). LUK will need to start re-purchasing shares to combat the dilution.
Still too early to judge anything. But Team Handler is off to a weak/mediocre start out of the gates.
However, kudos for stopping the bleeding with Sangart (no pun intended). I expect that we'll see LUK dispose of more of the legacy LUK businesses over time. They're distractions at this point.
I missed the Sangart reference on my first scan of the 10-Q.
In October 2013, the Company concluded that it would no longer continue to fund Sangart’s research and development activities, and commenced an orderly shut-down of its operations. The Company estimates future expenses related to Sangart’s final operating activities and shut-down costs are approximately $15.0 million, which are likely to be recorded during the fourth quarter of 2013.
Dry hole. This is my primary complaint about "old" LUK management. They paid themselves big bonuses for the "winning" bets, but didn't account for the big "losers" like Sangart. Don't get me wrong -- on a net basis, they made winning bets and deserved good comp. But management did better than shareholders over the past decade.
Agree with you on the math on older planes.
I'm guessing that a PE of 8-9 would get you into the 1.3-1.5x book range. So those valuation methodologies probably converge. I'd probably exit any of the aircraft lessors at 1.4x book. But we have a ways to go before I have to worry about that with AER. (And much longer for FLY.)
I agree that BV is probably understated. But I don't think the understatement is 20%.
On the last earnings call, the CEO said: "...AerCap has sold almost 270 aircrafts with an average age of 13 years at a $320 million gain in the last six years."
Unless I'm missing something, 270 aircrafts at a collective $320 million gain means that AER has booked a gain of roughly $1 million (and change) on each aircraft sold. That's a very small gain (on a percentage basis) per aircraft.
That said, I'm guessing that AER has done better with some aircraft models, and worse on others. So the actual built-in gain in the portfolio depends on the "mix" at any given time. It's complicated.
Another great quarter. The shares are back trading at a small premium to BV (1.04). Unlike FLY, this management team jumped on the opportunity to repurchase shares below BV. And now the shareholders are reaping the benefits.
Also a good quarter for Aircastle. Unfortunately, FLY, the laggard of the bunch, is my biggest position. Hopefully the FLY board of directors will take a hard look at what BBAM management is doing wrong compared to their more successful competitors. They need to address the inherent conflict in the "externally managed" business model.
Amen to that! And I thought the Onex deal was rotten from the start. However, this board has been pretty useless; probably took some time for me to post that observation.
Anyway, good luck to us longs.
Okay, now you can stop accusing me of malevolent intentions! :) Sounds like your analysis is lining up with mine at this point. Still my biggest position; I've always believed that the underlying business is solid, even if BBAM management has its sketchy moments (like the SO).
The business update was very interesting. You can see that new Team Handler is much more committed to transparency than old Team C&S. They aren't telegraphing the next move; but interesting to see some basic financial metrics in a user-friendly format.