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Ira Sohn Conference: David Einhorn on Microsoft and Delta Lloyd

David Einhorn is president of Greenlight Capital Inc., which he co-founded in January 1996. Greenlight Capital is a value-oriented investment advisor whose goal is to achieve high absolute rates of return while minimizing the risk of capital loss. Greenlight’s investment philosophy is to combine the analytical discipline of determining fair value with a practical understanding of markets. David is Chairman of the Board of Greenlight Capital Re Ltd. (GLRE) and a Director of BioFuel Energy Corp. (BIOF). He is the author of "Fooling Some of the People All of the Time," published in May 2008. David graduated with a B.A. summa cum laude from Cornell University.

(Einhorn spoke very quickly about Delta. It was hard to get down all the notes. If I can get a copy of the slide show I will provide more information.)

“When it becomes serious, you have to lie.” — Jean-Calude Juncker.

This is one of the most honest lines ever from politicians. This makes politicians' statements seem to imply politicians think it is okay to lie.

Delta Lloyd-DLA NA trades at 6x earnings, has a 2.6 billion euro market cap and book value of 24 euros a share. It has $40 billion of its own assets.

It is mostly life and business. While it is rated A, it has only 15% debt/equity. The company focuses on the long-term pension business.

Eighty percent of assets are invested in fixed income, 20% in equities and re. It did not need a bailout.

Fixed income portfolio does not have exposure to Ireland or Italy.

DLA trading at half at what it is worth because Aviva, which is a known seller owns 43% of stock. We called them to buy 43% of stock but they instead sold to Goldman and other i-banks.

We would pay the current market price for that 43% if we could.

Microsoft (MSFT) — five years ago I compared it to A-Rod because:

From ops it has made progress revenue, profits went up, EPS has doubled. Four of the segments have grown. Windows 7 has sold 350 million.

New products have been growing also.

Microsoft has one more shot in smartphones through Nokia; however, it is hard to imagine success in this area.

Microsoft has outperformed in op metrics compared to S&P 500. However, the PE net of cash is only at 7. Today, Microsoft is positioned to lead in cloud computing. Morgan Stanley estimates $5 billion revenue from cloud computing which is double the amount of Salesforce (CRM).

Bears argue that Office poses risk. Five years ago the fear was Google Docs. However, Google Docs has only 1%. Now the fear is of tablets.

The comparison to A-Rod was wrong. A-Rod played great and management sucked.

Microsoft has miserable Charlie Brown coaching. The most common question I get is, "What about Ballmer?" I say Ballmer does not care what Wall Street; you can make a lot of money ignoring Wall Street. However, I can say today that Ballmer’s problem is that he is stuck in the past. His response has been to buy his way out of the hole. A good example was the failed bid of Yahoo (YHOO), which Yahoo was crazier for turning down.

In 2006 interview, Ballmer says he doesn’t let his kids play with the iPhone.

In 2007 interview, Ballmer said the iPhone would get no market share.

Microsoft wastes money in R&D. However, if Ballmer let his kids play with the iPad he would get the message.

It is time for Microsoft to change search. They could team up with Facebook on this effort. This could help monetize Facebook’s traffic without alienating users. It is clear Facebook needs search and Microsoft needs revenue. Microsoft could give Facebook search in exchange for a stake of the company.

A lot of senior staff have left Microsoft over the past few years.

Einhorn ended off stating that he thinks Ballmer needs to go.

Einhorn had one final statement to make and that was "lets go Mets." Now we all know why. Einhorn just bought a 49% stake in the NY Mets:

Disclosure: None

http://www.valuewalk.com/

About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

Visit Jacob Wolinsky's Website


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