While stock market continues to struggle, it might be a good time to buy for those with deep pocket. Leucadia National Corp. (LUK), a holding company managed by Ian Cumming and his partner Joseph Steinberg, had agreed to acquire 11.3 million shares of AmeriCredit for about $146 million.
AmeriCredit Corp. (ACF), an auto finance company, engages in purchasing and servicing automobile sales finance contracts in the United States and Canada. It also originates operating leases on automobiles. AmeriCredit Corp. has a market cap of $1.2 billion. After the purchase, Leucadia will own about 12% of the AmeriCredit Corp.
Leucadia has been called Miniature Berkshire among investing communities. It has been managed by Chairman Ian Cumming and President Joseph Steinberg since the company was founded 30 years ago. By the way, Ian Cumming is in GuruFocus List of Gurus. This team has achieved an average return on equity 20.8% during the past 29 years, which is slightly lower than Berkshire ’s 21.4%. If you visit the website of Leucadia (http://www.leucadia.com/), you will like what you see; it is even cheaper than that of Berkshire Hathaway (http://www.berkshirehathaway.com/).
Leucadia is specialized in distressed investing. The company invested in telecom companies after the burst of internet bubble. The recent burst of financial bubble apparently gives opportunities again. Like Berkshire Hathaway, the company holds a lot of cash.
This the filing of Leucadia regarding the purchase:
Leucadia National Corporation (the "Leucadia"), through its subsidiary, Baldwin Enterprises, Inc. entered into a share forward transaction with Jefferies & Company, Inc. (the "Seller") dated January 11, 2008 for the acquisition of 11,316,200 shares of common stock of AmeriCredit Corp., a New York Stock Exchange listed company. The agreement reflects a trade date of January 10, 2008. As previously disclosed by Leucadia, a subsidiary of Leucadia, and the Seller and certain of its affiliates each own 50% of Jefferies High Yield Holdings, LLC, and affiliates of the Seller have provided investment banking services to Leucadia. Pursuant to the terms of the share forward transaction agreement, the closing of the transaction will occur on February 25, 2008 , and the aggregate purchase price for the shares will be $145,978,980, of which $72,989,490 was paid upon signing.
AmeriCredit Corp. is owned by 3 Gurus: Bill Miller owns 3,535,000 shares as of 09/30/2007, an increase of 29.25% from the previous quarter. This position accounts for 0.75% of the $16.2 billion portfolio of Legg Mason Value Trust. Chuck Akre owns 3,292,011 shares as of 09/30/2007, which accounts for 3.02% of the $1.92 billion portfolio of Akre Capital Management, LLC. NWQ Managers owns 5,637,727 shares as of 09/30/2007, a decrease of 41.36% of from the previous quarter. This position accounts for 0.3% of the $33.3 billion portfolio of NWQ Investment Management Co. Ken Heebner sold out his holdings in the quarter ended 09/30/2007.
A number of executives have bought AmeriCredit Corp recently, including its EVP, COO Steven M Floyd, who bought 20,000 shares of ACF stock on 10/26/2007 at the average price of $14.68, the price of the stock has decreased by 23.71% since.
The long term high return on equity of Leucadia has rewarded its shareholders. Leucadia stocks have outperformed Berkshire during the past 3, 5, 10 and 20 years as well. If you are old enough and had invested $1000 in Leucadia when it went public in 1978, those shares would worth $2.8 million without counting dividends, averaging 33% a year. With this humongous return, Leucadia has a market cap of $10 billion, which puts it into mid cap category.
How did Leucadia achieve this giant return? This is what Ian Cumming and Joseph Steinberg wrote in their shareholder letters: “We tend to be buyers of assets and companies that are troubled or out of favor and as a result are selling substantially below the values which we believe are there. From time to time, we sell parts of these operations when prices available in the market reach what we believe to be advantageous levels.”
Leucadia's “Rules of the Road”:
1. Don’t overpay, no matter what the madding crowd is up to.
2. Buy companies that make products and services that people need and want and provide them as cheaply as possible with consistently high quality. Lower cost and higher quality is a relentless and never-ending task.
3. Earnings sheltered by NOLs are more valuable than earnings that are taxed!
4. Compensate employees for performance and expect hard work and honesty in return.
5. Don’t overpay!
Don’t overpay! Wait until it is time like this.