How ... low ... will ... it ... go? This time...?
To Ed's point about float, ironically, BBAM's figurehead CEO touted the SO as a tool to increase the float -- theoretically increasing liquidity and PPS. Unfortunately, the market doesn't reward companies that are willing to throw existing shareholders under the bus -- read: material dilution -- for the sake of "increased float."
I'm still (too) long, and I actually think that we may see a move in the PPS in/into 1H 2015. But it's frustrating to bump along at the SO price. Although, it's also hard to blame the market -- obviously BBAM/Onex did not see more than $14 in value -- or it would have priced the SO at a higher valuation -- closer to BV.
Most important is the fact that they are not subject to Big Bank Regulation under Dodd Frank. JEF can perform certain services for clients that the Big Banks cannot. And LUK/JEF can seed investment management firms, etc., while the Big Banks are exiting that line of business.
I saw Besterman's theory, and I don't think it's about upsizing leverage. I think it's the general advantage of having critical mass but staying nimble without the Regulatory Suffocation (costs, time drain, etc.) imposed by Dodd Frank.
I agree -- I was fortunate to allocate some capital to HOFD during the financial meltdown (HOFD sold off massively). In my view, HOFD has significant upside. A big limitation has been the lack of liquidity. Not sure how they address that, other than a secondary offering, if HOFD needs the capital.
Long thread. I agree, LUK has seriously disappointed its shareholders over the last five years. Meanwhile, LUK management paid itself fairly ridiculous bonuses with respect to its good deals, not netting against the bad (deals).
However, LUK is a very different animal after the JEF merger. Better/worse? Time will tell. But you can't compare Team Handler to Team Buffett. Team Handler only has a transition year under its belt.
I didn't take notes, but I listened to the call and just posted some observations (from memory, so bear with me, because my memory goes foggy in about 6 minutes these days).
I'm a long, long time LUK shareholder. I'm skeptical about the "new conglomerate" model, but I'm patient. Despite my skepticism, I was very impressed by the call.
I continue to hope (i) Team Handler sells the smaller, legacy businesses -- to enhance focus on Jefferies and the other larger businesses, and (ii) if the share price continues to struggle, Team Handler and the Board pursue a stock-buy back strategy.
On the latter point, Handler (or someone) mentioned that they view stock buy backs opportunistically in connection with market dislocations. So I'm not holding my breath.
- National Beef. The CEO described the current business. Despite the challenges facing the business, he's confident in the business model and believes that they'll participate and flourish in the next upcycle. [Someone asked about Walmart. He said that Walmart terminated the relationship because Walmart wanted to source all its proteins (beef, chicken, pork) from a single vendor or vendors. They've been re-positioning the business, e.g., by focusing on the tannery operation.] Overall, the story sounded better from the CEO than on paper.
- Vitesse Energy. The CEO described the business, which is basically looking to manufacture oil out of highly de-risked plays in the Bakken. In theory, it's a relatively low risk, quick payback business model. [Someone asked how they can maintain such high returns as effectively a financial investor. The CEO danced around the question -- whether intentionally or not. Friedman (or someone) jumped in -- to me, it sounds like the Vitesse management team is adding value by identifying the lowest-risk, highest-return inventory for oil production.]
- HomeFed. The CEO described the business, some focus on the legacy business, minor focus on the newer assets recently acquired from LUK. LUK wants to elevate HomeFed to the big leagues -- not a few hundred shares trading daily. It sounds like a solid enough business, highly cyclical and now participating in the real estate upcycle. [Someone asked about the fairness of related-party transactions between LUK and HOFD. Team Handler has a process, etc.]
- Linkem. The CEO was describing the business when I had to jump. Sounded like "old school" LUK to me; very long-term development opportunity with huge upside. For me, similar to National Beef, you get some positive color listening to the CEO live.
- I missed the discussion (if any) of Conwed, Idaho Timber and Lake Charles / Oregon LNG. I'm very skeptical about the latter two businesses -- expecting "dry holes."
I listened to most of the call today. I had to jump to another meeting a little after 9am -- during the presentation from the LinkEm CEO, which was interesting. I was listening and multi-tasking, so I don't have precise notes.
If you haven't seen it, you should pull up the investor presentation -- SEC Form 8-K. It has a very helpful organizational chart. Team Handler sees LUK as part "Financial Services" (JEF, LUK asset management, Berkadia) and part "Merchant Banking."
Very interesting -- either Handler or Friedman (or someone) mentioned that they expect to convert the $1.3 billion DTA into cash within the next 3-5 years. If so, that would be astonishing income generation during that period.
In terms of logistics, Handler and Friedman discussed the Jefferies business (including the "developing" asset management segments), and then the CEOs of the operating subs discussed their respective businesses.
- JEF etc. Nothing too new or exciting here. Team Handler believes that they have a unique platform and strong group of players. They made some big investments during the financial crisis, and those investments are bearing fruit. They are expanding the asset management business by investing in managers (and management companies), rather than doing M&A deals that would create goodwill -- they believe everything is highly or fairly valued. [No great questions from the audience/phones. Someone asked -- if the share price continues to struggle two/three years out, would they get more aggressive on stock buybacks. No meaningful response.]
- Berkadia. Justin Wheeler is temp CEO and discussed the business. Berkadia has been growing and "re-branded" -- Wheeler/LUK are very bullish on the future of the platform. [No meaningful questions.]
- More to come...
The numbers will definitely improve for the next few quarters.
I wonder if FLY will increase the dividend in the near future. FLY has effectively marketed itself as a "return of capital through dividends" play. I would think that it would try to grow the dividend, roughly tracking the growth of the portfolio. For example, an extra penny/quarter would be 4% growth annually. Obviously, the first priority is portfolio growth; but seems like FLY should balance that with a commitment to increasing dividends.
If you are a manager, and you are stripping out management fees not proportional to your ownership -- then you are motivated to make decisions that enhance your management-fee stream, notwithstanding the negative impact on your shares.
Put another way, the shares are like a free option. If you get rich on the management fees, you're sitting fat and happy regardless of the value of your shares.
I completely understand your theory, but believe me, I've seen deals where the "manager" is a small minority shareholder and fleeces the majority shareholders by engaging in behavior to maximize its cash-flow as manager -- despite the negative impact on its returns as minority shareholder.
Haha, good point about the fancy car.
FLY has certainly underperformed, and will probably keep underperforming the likes of AER. However, bigger picture, I figure that the broader market is somewhat overvalued, and FLY is somewhat undervalued -- largely due to the "outsourced" management model with BBAM. FLY will probably keep creeping up towards book value over the next three to five years.
Huge announcement from Oregon LNG. Meanwhile, LUK is hovering near a 52-week low.
Yesterday, FERC approved the Freeport LNG terminal. According to Reuters: "The next LNG export project likely to receive approval from FERC is Dominion Resources Inc's Cove Point facility in Maryland."
Here's the announcement from LUK/Oregon LNG:
The U.S. Energy Department said on Thursday it has approved Oregon LNG to export liquefied natural gas, as the Obama administration works through applications to export fuel from the domestic drilling boom to markets in Asia and Europe.
Oregon LNG, which is controlled by Leucadia National Corp , has been authorized by the department to export up to 1.25 billion cubic feet per day of the fuel. The Astoria, Oregon-based project still needs approval from the Federal Energy Regulatory Commission.
Goldman just reported Q2 earnings:
"Compensation, the firm's biggest expense, climbed to $3.92 billion, or 43 percent of revenue, the same percentage as a year earlier."
"Morgan Stanley reported compensation expenses of $4.3 billion in the first quarter, compared with $4.2 billion in the period a year earlier. But its comp ratio, a closely watched figure for Wall Street firms, fell to 48 percent of revenue from 51.7 percent in the first quarter of 2013."
From the JEF 10-Q -- Q2 2014 results:
"Compensation and benefits expenses as a percentage of Net revenues was 56.0% for the three months ended May 31, 2014."
A number of valid points. However, I don't think they could have persuaded Cumming to stick around. Seems like either (i) he wanted out to do something else -- he's not getting any younger, or (ii) he didn't agree with the JEF deal on various grounds, so he wanted to get out.
The fact that Cumming has been exiting his large LUK equity stake is pretty disturbing. That tells us he doesn't see much near-term or long-term value in LUK, despite the mediocre performance (for shareholders / not management) over the past five years.
They clearly overpaid for NB. Maybe it's a decent business at the right price. But they clearly overpaid; would love to see a clawback for the cash bonuses related to that lousy deal.
NB's margins are inverse to the price of beef. Higher beef prices = lower margins, lower beef prices = higher margins.
The historic principals of LUK (Cumming and Steinberg) had a philosophical disagreement. One of them believed that LUK should repurchase shares from time to time; the other believed that it should not.
As discussed in another thread, Cumming has been dumping his LUK shares over the last year. For what it's worth, he must not see huge upside in LUK; put another way, his view is that LUK isn't trading at a material discount to fair value.
The biggest two businesses have been underperforming for the last two years: National Beef; and Jefferies. I suspect that LUK's current board may want to see improved cash generation from those two businesses before it considers a more "active" share repurchase program. (Note that the board has authorized some amount of share repurchases, but LUK treasury has never pulled the trigger.)
In sum, the top execs and board must not view LUK as significantly undervalued at this time.
Short stint for the SVP of marketing and consumer sales.
Crimson Wine Group (CWG) announced the appointment of Mary Jo Dale to the newly-created position of senior vice president of marketing and consumer sales. A seasoned veteran in the luxury wine and hospitality industries, Dale will report directly to president and CEO Erle Martin. Her role will encompass oversight of consumer-related programs across the portfolio. She will work closely with VP of marketing Natasha Hayes to align sales and marketing efforts across all brands.
On June 13, 2014, Crimson Wine Group, Ltd. (the "Company") announced that Mary Joe Dale, the Company's Senior Vice President of Marketing and Consumer Sales, was no longer employed with the Company effective June 13, 2014.
They have a website and a schedule. Just g00gle "lake charles clean energy" and filter for the past year. You'll see a link to the website/schedule.
Financial close is schedule for mid-2014. Construction is 36 months. Substantial completion in mid- to late-2017. Obviously, that all pushes back if we don't reach financial close in mid-2014.
My recollection is that LUK will need to raise significant equity, and they haven't announced an equity consortium yet. So not sure if that financial close projection is realistic. I'd expect that LUK may try to monetize part of the development premium embedded in the project. But time will tell (a common theme with LUK).