We initiated a position in the common stock of Compagnie Generale des Etablissements Michelin SCA ("Michelin") (XPAR:ML, Financial) during the quarter. This purchase added to the Fund's growing exposure to European Blue Chip common stocks, which we discussed in last quarter's letter. Other recently initiated European Blue Chip common stock positions include Total, Pargesa and Vodafone. Each of these companies has a very strong financial position, capable management team, healthy growth prospects and a common stock selling at a meaningful discount to our estimate of net asset value with a mid-single digit dividend yield.
Michelin is a leading producer of tires for cars, trucks, motorcycles, aircraft, subway trains and mining equipment. The company has a very strong market position, with nearly 15% of the global tire market, trailing only Bridgestone. The company's auto tire business is heavily weighted towards the premium and replacement tire markets, which have attractive growth prospects. Michelin has an extremely strong financial position with net debt to capital and net debt to Earnings Before Interest, Taxes Depreciation and Amortization ("EBITDA") of only 12% and 0.3 times. Management has an impressive long-term track record, as evidenced by profitability in each of the last ten years and an improvement in operating margins over that period to 11.5% from 5%. return on capital has increased to 13% from 5% over this period, and management is targeting as 15% return on capital by 2020. The stock was purchased at about 11 times earnings with attractive free cash flow and dividend yields of 9% and 3%, respectively.
From Third Avenue Management (Trades, Portfolio)'s first quarter 2014 letter.
