Leucadia National 2015 Annual Meeting Notes thanks to a reader for sending - looks like was also posted on The Motley Fool
I recently attended the Leucadia National Annual Meeting in New York City. These are my raw notes, posted so that those willing to wade through it all can draw their own conclusions. Apologies for anything unpolished. Because of my less than stellar transcription skills, these should be considered to capture the rough meaning of the statements rather than direct quotations.
Good hunting!
------------------------------------------------------------------
Leucadia National
Annual Shareholder’s Meeting
[I counted approximately 108 people in attendance, which includes employees and those on stage.]
Joe Steinberg (JS) began with some introductions and announcements. He acknowledged the recent retirements of Tom Mara, Joe Orlando, and Phil Cannella, who he described as our “tax guru, his job was to make sure we didn’t pay any more taxes than we needed to.” He extended a welcome to Teri Gendron, the new CFO, who isn’t really so new anymore. “When I asked her if she could reduce our 10-K to a few short paragraphs, she said it wouldn’t be a problem.” Introduced all the membrers of the board, all were present (they were having a board meeting directly after the meeting). In addition to the board, he noted that attending were Mike Sharp, general counsel, Teri Gendron, Barbara Lowenthal, and Rocco Nittoli, the treasurer.
The reading of the proxy votes was next, with 324M shares out of 366M, or 88%, being represented. All nominated directors were elected and all proxy proposals were ratified.
Rich Handler (RH), gave an overview in which he had an updated organization chart from the 10-K. [It was very similar to that given in the 10-K, so I won’t try to reproduce it.] Parent capital was $11.8B. In the last 2 years, we sold about $2.5B worth of assets. In a world where it is very hard to find value, we deployed about $2.5B in investments. He noted some recent changes, including Justin Wheeler becoming CEO of Berkadia and some additional investments in existing platforms of the operating businesses. We are striving to provide more transparency and communication to shareholders, so as to give a roadmap to our way to create long-term shareholder value. Behind each box that you see is a thriving organization with a team of people working to create value opportunities. This is a team effort, not just the Joe, Rich, and Brian show.
Now I’ll talk about he core business at Jefferies, where I just had my 25th anniversary on May 4; my wife threw me a very nice surprise party that I was happy about. We had about 5 quarters of near double-digit return on equity. The 4th quarter of last year was relatively challenging, and the 1st quarter of this year remained slow. But it looks like we are back on track, including on underwriting and other areas of the business. We are seeing opportunities to take advantage of our non-bank holding company status. We decided in the 4th quarter to transfer Bache to Satyem and that is on track to close, and should help overall return on equity and will simplify the balance sheet. At Jefferies Finance, where we partner with Mass Mutual, we believe that is a business we can scale and see it as a core business. At Jefferies LoanCore, we’re undergoing the registration process so I can’t talk about it too much.
With regard to the investment in Knight securities, we sold assets and raised capital for them, underwriting a stock offering.
I’ll also talk about Harbinger, now known as HRG Group a bit. We took a stake, consistent with our goal of trying to find value. We believe we had a very good entry point, with a sum of the parts valuation being substantially higher than what we paid. This investment is representative of how we think. It is important how we get into a company; that we have an ability to influence decisions and to create value is important to us. They had two jewels, Spectrum Brands and FGL; they had some other assets that are not as valuable, but also had a business strategy involving a lot of overhead. We recent put FGL up for sale, and believe we will receive a full valuation for that. Spectrum recently acquired Armorall; they have an ability to create a world-class consumer products company.
[Next, various managing directors at Jefferies/Leucadia who work with the different business units presented on collections of operating businesses.]
Nick Daraviras presented on National Beef. It operates two processing plants with good access to cattle. It also provides value-added products which improve margins, including beef and pork consumer-ready products, a tannery, and Kansas City Steaks which you can check out online. The main story of 2014-2015 has been availability of cattle, which had been declining for years due to drought. In 2014 into 2015 we have seen more favorable weather and good grazing conditions. This led to greater heifer retention and a period of herd rebuilding; this in turn reduces the amount of beef available for sale. But, if this process continues, it could have beneficial effects later.
Next I’ll talk about the asset management business at LAM, where our strategy is to partner and sometimes seed. Topwater Capital is a hedge fund of funds that pioneered a unique model; managers put up 10% as a first-loss provision. In 2014 they outperformed their comparable index with no down months and with a low market correlation. Structured Alpha uses a strategy involving merger arbitrage; this was an outgrowth of strategies developed within Jefferies. Mazama is a long-only manager that has performed very well over a long period. Folger Hill is a multi-manager, long/short model. They raised over $1B at launch, with $400M from us.
Idaho Timber has 7 plants and 3 sawmills. They have faced headwinds since the housing market collapse, but saw a 60% increase in EBITA in 2014 off of a 19% increase in volume. Their strategy is to focus on operations and opportunistic purchasing.
Jimmy Hallac presented next. FXCM is a leading provider of trading services for foreign exchange. They had $1.5B in capitalization when the Swiss franc was revalued. Their clients lost more than $200M that they needed to collect from the clients and because of that had run out of sufficient regulatory capital when they . contacted us. On the next day, that $200M was funded by Leucadia. We have confidence in their management team. The investment is structured as a senior security; the coupon increases by 1.5% each quarter. We have been repaid a total of $88M in cash, and have $228M in remaining principal, for which we expect payback on schedule. That investment managed to stabilize FXCM, and as well as paying us back, they are focused on reinvigorating their business. That investment is marked to market on a quarterly basis; in the last quarter it had a $947M mark using a 3rd party model. There are many inputs to that model, the most important of which are FXCM’s stock price and the volatility. Just as an example, a $0.30 change in their stock price could result in a $51M loss on the mark. Since that last report, we’ve seen a $131M loss on the mark since FXCM stock is down $0.70.
Linkem is a fixed wireless provider in Italy. Italy has no cable TV system, and wired broadband is only available via DSL. They have substandard legacy networks. Linkem acquired spectrum via auction; it is very good for data, not good for cell. They have been putting up antennas on existing cell towers. Up to 2013, they were using WiMax covering 30% of the country. In December 2014, they switched to LTE and have an expanding footprint. Subscriber growth is increasing rapidly, along with low churn. We invested $238M to get 42% of the common stock, and have 55% on a diluted basis. We hold it on the books at $145M.
Conwed is a manufacturer of extruded oriented knitted netting, used in pipelines, soil erosion, etc. It has been a steady modest grower. Last year Conwed acquired 80% of Filtrex and 100% of Weaver. Filtrex is a sock manufacturer. Weaver is an installer of the sock. We have received from them $150M in excess of our investments. It is held on the books at $117M.
Golden Queen we invested in as a joint venture. We invested $71M, the Clay family invested $34M. Roughly speaking, we own 1/3, the Clay family owns 1/3, and the public shareholders own 1/3. It is the first mining company to be approved in CA since they changed their rules in 2002. It is on time and on budget. We expect to be pulling gold early next year. The county where it is located is reliant on oil revenues and is going through an emergency due to the low oil price, so we’re viewed positively for creating jobs locally. There will be a top-up investment in the summer to complete construction, which we knew about going in.
David Severn presented next. Berkadia is a 50/50
The post Leucadia National 2015 Annual Meeting Notes appeared first on ValueWalk.
Like this article? Sign up for our free newsletter to get articles delivered to your inbox