Leite
Nuovo Utente
- Registrato
- 16/9/06
- Messaggi
- 3.166
- Punti reazioni
- 196
The New Leucadia Is No Longer Lovable - WSJ
What happens when you merge a quirky but beloved conglomerate with a largely unloved investment bank? The answer: Shareholders flee. That is what happened at Leucadia National Corp., whose shares compounded at 19% a year from 1979 to 2012, topping the market by more than 8 percentage points.
The investment bank is Jefferies Group LLC, the scrappy broker known for its high-yield bond and stock-trading businesses. In 2012, as Jefferies was suffering one of its periodic beatings by investors, Leucadia agreed to buy the 70% of the company it didn’t already own and installed the bank’s longtime boss as Leucadia’s chief executive.
The two firms knew each other well; Jefferies did every capital raising for Leucadia in the previous 22 years. The deal, after Leucadia’s most successful year, allowed the company’s often-bickering leaders, Ian Cumming and Joseph Steinberg, to step back after 35 years and allowed the cash-rich company to put some capital to work.
Since the deal closed, Leucadia’s shares have fallen 41% and were down nearly 50% early last week, near their 2009 financial-crisis low. Some of the decline can be blamed on bad decisions and poor performance by the company, and some is due to lousy markets for investment banks.
Another cause was selling by many of Leucadia’s longtime shareholders, some of whom held the stock for nearly two decades. Their reason: It isn’t the old Leucadia anymore. “It’s a different beast,” said Oppenheimer & Co.’s Chris Kotowski, the only Wall Street analyst covering the stock. Mr. Kotowski is positive on Leucadia, believing many of its businesses will perform better in coming years. But he understands the view of shareholders. “When you did the merger, all of the sudden it was no longer a conglomerate, it was Jefferies,” he said.
Leucadia owned everything from iron-ore producers to wineries to large swaths of land in Southern California. Its executives rarely talked publicly and remained under the radar for all but the most sophisticated value investors, who were willing to put up with complexity and volatility to get solid long-term returns.
It famously bought the owner of S&H Green Stamps long after its heyday as one of the first big loyalty programs. Leucadia’s insight, that fewer people than expected would redeem the stamps, was worth millions. A painting of a sheet of stamps still adorns the wall of a conference room at the firm.
Hits like that drew investors like Fairholme Capital Management LLC, Tweedy Browne Co. and Royce & Associates LLC, all of which have held shares in Leucadia since at least 1999. They and many other longtime shareholders have been selling for the past few years.
“It is more focused on the business of Jefferies than on some of the long-term projects that Leucadia focused on,” said Fairholme’s Bruce Berkowitz, who has reduced his holdings of all financial companies, believing their prospects are weak. Some longtime shareholders have suffered redemptions in recent years, forcing them to cut their holdings.
There are good reasons to sell Leucadia. Jefferies has performed dismally since the deal, as its high-yield bond business and a big bet on commodity trading both struggled. And many of Leucadia’s old businesses have fared equally poorly, in particular its largest revenue generator, meat processor National Beef, which has lost money three years in a row.
Leucadia’s CEO, Richard Handler, has grouped the company’s businesses in three buckets: an investment bank, which is Jefferies; a merchant bank, which holds the company’s nonfinancial business; and an asset manager that is a collection of hedge-fund startups. Leucadia under Mr. Handler is more of a financial firm than it was in the old days, and that shift has come at a terrible time. Most Wall Street banks are trading below tangible book value, and many of their core businesses are struggling. The hedge-fund industry just suffered its worst year for fund launches and liquidations since the financial crisis, as investors push back on high fees and weak performance.
Supporters of the company argue that Leucadia has a brighter future with Jefferies than it would have on its own. The company has trimmed weak investments such as Australian mining company Fortescue Metals Group Ltd., whose shares have tumbled.
Since the deal, Leucadia has taken advantage of troubled sellers to make value-style investments in currency-trading firm FXCM Inc. and in the owner of Spectrum Brands Holdings Inc., which has 48 consumer brands, including Rayovac batteries, George Foreman grills and Kwikset locks.
There have been other positive changes. The company is actually communicating with investors and has reduced Jefferies’s balance sheet to weather the storm in the markets. And other businesses are doing well, including lender Berkadia, its joint venture with Berkshire Hathaway Inc.
Jefferies still reports its own earnings and when it released the lousy numbers last week, Leucadia’s shares fell more than 5% that day. But by the end of the week, they had risen more than 14% off their lows. The old Leucadia has gone the way of S&H Green Stamps. Unless investors fall back in love with investment banks like Jefferies, there are few reasons to believe the new Leucadia will capture its old glory anytime soon.
What happens when you merge a quirky but beloved conglomerate with a largely unloved investment bank? The answer: Shareholders flee. That is what happened at Leucadia National Corp., whose shares compounded at 19% a year from 1979 to 2012, topping the market by more than 8 percentage points.
The investment bank is Jefferies Group LLC, the scrappy broker known for its high-yield bond and stock-trading businesses. In 2012, as Jefferies was suffering one of its periodic beatings by investors, Leucadia agreed to buy the 70% of the company it didn’t already own and installed the bank’s longtime boss as Leucadia’s chief executive.
The two firms knew each other well; Jefferies did every capital raising for Leucadia in the previous 22 years. The deal, after Leucadia’s most successful year, allowed the company’s often-bickering leaders, Ian Cumming and Joseph Steinberg, to step back after 35 years and allowed the cash-rich company to put some capital to work.
Since the deal closed, Leucadia’s shares have fallen 41% and were down nearly 50% early last week, near their 2009 financial-crisis low. Some of the decline can be blamed on bad decisions and poor performance by the company, and some is due to lousy markets for investment banks.
Another cause was selling by many of Leucadia’s longtime shareholders, some of whom held the stock for nearly two decades. Their reason: It isn’t the old Leucadia anymore. “It’s a different beast,” said Oppenheimer & Co.’s Chris Kotowski, the only Wall Street analyst covering the stock. Mr. Kotowski is positive on Leucadia, believing many of its businesses will perform better in coming years. But he understands the view of shareholders. “When you did the merger, all of the sudden it was no longer a conglomerate, it was Jefferies,” he said.
Leucadia owned everything from iron-ore producers to wineries to large swaths of land in Southern California. Its executives rarely talked publicly and remained under the radar for all but the most sophisticated value investors, who were willing to put up with complexity and volatility to get solid long-term returns.
It famously bought the owner of S&H Green Stamps long after its heyday as one of the first big loyalty programs. Leucadia’s insight, that fewer people than expected would redeem the stamps, was worth millions. A painting of a sheet of stamps still adorns the wall of a conference room at the firm.
Hits like that drew investors like Fairholme Capital Management LLC, Tweedy Browne Co. and Royce & Associates LLC, all of which have held shares in Leucadia since at least 1999. They and many other longtime shareholders have been selling for the past few years.
“It is more focused on the business of Jefferies than on some of the long-term projects that Leucadia focused on,” said Fairholme’s Bruce Berkowitz, who has reduced his holdings of all financial companies, believing their prospects are weak. Some longtime shareholders have suffered redemptions in recent years, forcing them to cut their holdings.
There are good reasons to sell Leucadia. Jefferies has performed dismally since the deal, as its high-yield bond business and a big bet on commodity trading both struggled. And many of Leucadia’s old businesses have fared equally poorly, in particular its largest revenue generator, meat processor National Beef, which has lost money three years in a row.
Leucadia’s CEO, Richard Handler, has grouped the company’s businesses in three buckets: an investment bank, which is Jefferies; a merchant bank, which holds the company’s nonfinancial business; and an asset manager that is a collection of hedge-fund startups. Leucadia under Mr. Handler is more of a financial firm than it was in the old days, and that shift has come at a terrible time. Most Wall Street banks are trading below tangible book value, and many of their core businesses are struggling. The hedge-fund industry just suffered its worst year for fund launches and liquidations since the financial crisis, as investors push back on high fees and weak performance.
Supporters of the company argue that Leucadia has a brighter future with Jefferies than it would have on its own. The company has trimmed weak investments such as Australian mining company Fortescue Metals Group Ltd., whose shares have tumbled.
Since the deal, Leucadia has taken advantage of troubled sellers to make value-style investments in currency-trading firm FXCM Inc. and in the owner of Spectrum Brands Holdings Inc., which has 48 consumer brands, including Rayovac batteries, George Foreman grills and Kwikset locks.
There have been other positive changes. The company is actually communicating with investors and has reduced Jefferies’s balance sheet to weather the storm in the markets. And other businesses are doing well, including lender Berkadia, its joint venture with Berkshire Hathaway Inc.
Jefferies still reports its own earnings and when it released the lousy numbers last week, Leucadia’s shares fell more than 5% that day. But by the end of the week, they had risen more than 14% off their lows. The old Leucadia has gone the way of S&H Green Stamps. Unless investors fall back in love with investment banks like Jefferies, there are few reasons to believe the new Leucadia will capture its old glory anytime soon.