(GuruFocus, January 11, 2010) A little over a year ago, on December 16, 2008, GuruFocus reported Bruce Berkowitz And Leucadia (LUK, Financial) Now Control AmeriCredit Corp. (ACF, Financial). We reported that between the two Investment Gurus they controlled about more than half of the shares outstanding at the time, and we stated that “Their investments into ACF common stocks have been a loser for both Gurus so far this year. Year to date (2008), ACF has lost 45% of its value, from around $13 to Tuesday’s of $7.07. “
We were too early in judging the investment!
As it turned out, AmeriCredit might be one of the best investment moves that Berkowitz made during the Financial and Credit Crisis in the past year and a half.
Share Acquisition History and Costs
Berkowitz’s SEC filing shows that he started to build a position in ACF since 1Q08 when he first reported a 13 million share stake in the company. By 3Q08, he reported that he owned 21 million shares. Then in December, 2008, he entered a debt-for-equity deal with the company and acquired an additional 15.1 million shares at $6.02 per share.
It should be noted that not all shares Bruce Berkowitz bought are for The Fairholme Fund. For instance, in the latest 13-D that was filed on December 31, 2009, he disclosed that the fund owned 31,567,470 shares, and he own 492,652 shares personally . However, in aggregate, the 13-D stated that he owned 35,349,099 shares. The gap of 3,288,977 shares presumably belongs to the managed accounts that Berkowitz manages besides the Fund.
The Fairholme Fund 2009 Semi-Annual report shows by November 30, 2008, the fund owned 16.7 million shares of ACF at a cost of $199 million. That is less than $12 per share. A large portion of the shares, including the shares acquired through the debt for equity swap, were acquired after November 30, 2009 at much lower prices. Overall, it is safe to say that Berkowitz acquired his share below an average price of $10 per share.
Berkowitz’s Investment Thesis on ACF
Berkowitz discussed his investment thesis on ACF in a number of occasions. Most extensively, during the December 24, 2008 interview with Robert Huebscher of http://www.advisorperspectives.com/:
Berkowitz Left the Board
A year has passed and ACF stock returned to over $20 per share as of today. Recently, Bruce Berkowitz resigned from the Board of ACF. Here is an excerpt from the companies press release on November 16, 2009:
Berkowitz Selling ACF Stocks
As it turns out, Berkowitz meant it literally when he said he would leave the board when the time comes to sell the investment. The Latest SEC Form 4 filing shows that Berkowitz has been selling ACF stocks:
So far he had not sold the shares that he owned personally yet, and we do not know how deep he is going to reduce his holdings in the Fund and in the separately managed accounts neither.
Conclusion
One should not be surprised that Bruce Berkowitz is selling ACF shares. The stock has recovered dramatically from its March 2009 lows and is trading at about 1.3 of book value. In this one stock along, Berkowitz has more than doubled his money and made more than $300 million.
Valuation alone is enough to drive him to somewhere else.
Give the large size of his stake (about 26.5%), it will be interesting to see how he can unwind his position without destroy the stock price.
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We were too early in judging the investment!
As it turned out, AmeriCredit might be one of the best investment moves that Berkowitz made during the Financial and Credit Crisis in the past year and a half.
Share Acquisition History and Costs
Berkowitz’s SEC filing shows that he started to build a position in ACF since 1Q08 when he first reported a 13 million share stake in the company. By 3Q08, he reported that he owned 21 million shares. Then in December, 2008, he entered a debt-for-equity deal with the company and acquired an additional 15.1 million shares at $6.02 per share.
It should be noted that not all shares Bruce Berkowitz bought are for The Fairholme Fund. For instance, in the latest 13-D that was filed on December 31, 2009, he disclosed that the fund owned 31,567,470 shares, and he own 492,652 shares personally . However, in aggregate, the 13-D stated that he owned 35,349,099 shares. The gap of 3,288,977 shares presumably belongs to the managed accounts that Berkowitz manages besides the Fund.
The Fairholme Fund 2009 Semi-Annual report shows by November 30, 2008, the fund owned 16.7 million shares of ACF at a cost of $199 million. That is less than $12 per share. A large portion of the shares, including the shares acquired through the debt for equity swap, were acquired after November 30, 2009 at much lower prices. Overall, it is safe to say that Berkowitz acquired his share below an average price of $10 per share.
Berkowitz’s Investment Thesis on ACF
Berkowitz discussed his investment thesis on ACF in a number of occasions. Most extensively, during the December 24, 2008 interview with Robert Huebscher of http://www.advisorperspectives.com/:
You were recently elected to serve on the Board of one of your portfolio companies, AmeriCredit Financial (ACF), in which you and another investor have a controlling interest. How do you value ACF in run-off mode? As a going concern? You have investments in two levels of ACF's capital structure and are now a director. How do you weigh the advantages of being an activist with the business risk of being an insider?
This is an excellent question and it goes to the key issues behind our investment. We bought ACF because we believed there was significant value in the company through its ability to generate free cash flow. Then we looked at ways in which we could “kill” the company – i.e., what kinds of mistakes or misfortunes could impair our investment. In the case of ACF, we believe that in some of those scenarios – such as in run-off mode – we could get significantly higher value. The tangible book value should start to approximate the liquidation value. But then we look for what is not included in the tangible value, such as the time value of money (e.g., the present value of future insurance premiums) and whether the tangible values are really tangible (e.g., whether their fixed assets are fairly valued on their balance sheet).
In the worst case, we will make some pretty good money.
I look at my Board seat as a way to protect our shareholders’ value. It does not affect my relationships with or ability to invest in any other companies. In fact, it expands my knowledge of related industries, from automobile lending to dealerships to insurance. When the time comes to sell our investment, I will leave the Board. I do not accept any compensation, such as fees or restricted stock grants. Only my travel expenses are reimbursed. I will only stay on the Board to help our shareholders.
Berkowitz Left the Board
A year has passed and ACF stock returned to over $20 per share as of today. Recently, Bruce Berkowitz resigned from the Board of ACF. Here is an excerpt from the companies press release on November 16, 2009:
FORT WORTH, Texas--(BUSINESS WIRE)--Nov. 16, 2009--AMERICREDIT CORP. (NYSE:ACF) today announced the appointment ofRobert Sturges to its board of directors and the resignation ofBruce Berkowitz. Mr. Sturges isFairholme Fund, Inc.’s designee to AmeriCredit’s board.
…
Mr. Berkowitz stepped down from AmeriCredit’s board due to the demands of his position as Managing Member ofFairholme Capital Management. Mr. Berkowitz’s resignation did not result from any disagreement with AmeriCredit’s board or management.
Berkowitz Selling ACF Stocks
As it turns out, Berkowitz meant it literally when he said he would leave the board when the time comes to sell the investment. The Latest SEC Form 4 filing shows that Berkowitz has been selling ACF stocks:
- On January 4, 2010, he sold 21,050 shares from the accounts he manages separately at the price of $19.07 per share and he sold 36,500 shares from The Fairholme Fund at $19.22 per share.
- On January 5, 2010, he sold 53,700 shares from the Fund.
So far he had not sold the shares that he owned personally yet, and we do not know how deep he is going to reduce his holdings in the Fund and in the separately managed accounts neither.
Conclusion
One should not be surprised that Bruce Berkowitz is selling ACF shares. The stock has recovered dramatically from its March 2009 lows and is trading at about 1.3 of book value. In this one stock along, Berkowitz has more than doubled his money and made more than $300 million.
Valuation alone is enough to drive him to somewhere else.
Give the large size of his stake (about 26.5%), it will be interesting to see how he can unwind his position without destroy the stock price.
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Bruce Berkowitz for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
