Author Topic: FRFHF Q3  (Read 4136 times)

globalfinancepartners

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Re: FRFHF Q3
« Reply #10 on: November 07, 2018, 12:57:11 PM »
I have a quick question.  So in July Fairfax put $264.6 million into Brit as a capital contribution and Brit used that to purchase an 11.2% ownership interest form OMERS (and pay OMERS an accrued dividend owed).  So it's like a share repurchase / retirement, where Fairfax's ownership goes up, but so does the ownership of the other remaining minority owners - right?

Why wouldn't Fairfax buy the shares from OMERS, which would increase Fairfax's ownership only?

Is the net effect the same?  As in, the capital contribution raised FFH's ownership percentage and then the share cancellation resulted in the same percentage ownership dynamics for all parties as would have been the case if FFH just bought OMERS's shares directly?


Cigarbutt

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Re: FRFHF Q3
« Reply #11 on: November 07, 2018, 06:52:34 PM »
I have a quick question.  So in July Fairfax put $264.6 million into Brit as a capital contribution and Brit used that to purchase an 11.2% ownership interest form OMERS (and pay OMERS an accrued dividend owed).  So it's like a share repurchase / retirement, where Fairfax's ownership goes up, but so does the ownership of the other remaining minority owners - right?

Why wouldn't Fairfax buy the shares from OMERS, which would increase Fairfax's ownership only?

Is the net effect the same?  As in, the capital contribution raised FFH's ownership percentage and then the share cancellation resulted in the same percentage ownership dynamics for all parties as would have been the case if FFH just bought OMERS's shares directly?
I seem to remember that FFH, with the purchase of Zenith, had used an upstream dividend from the acquired sub itself to "finance" the purchase and was expecting a similar scenario with the repurchase of minority interest for Brit as Brit had, at least at the end of last year, significant dividend capacity. Earlier this year, I had tried to figure out the ins and outs with FFH disclosures and numbers didn't seem right. Just looked deeper at Brit's own disclosure (half-year report, see below) and numbers do add up. See note 19 p.41 and note 15 p.38. Conceptually, FFH, through a sub, actually used the "contribution" to buy shares (new) of Brit and Brit used its own capital (contribution minus dividend) to acquire and cancel shares from OMERS (who is the only minority holder for Brit). I can't explain why FFH did not buy directly from OMERS and wonder if it is related to legal structure, regulatory capital rules or tax reasons. The net effect on Brit capital appears to be essentially nil.
http://www.britinsurance.com/financials/results

Of note also, versus the share awards issue that may have resulted from the acquisition of Brit (and AW?), I looked at note 33 from Brit AR 2017:

33 SHARE‑BASED PAYMENTS (continued)
(a) Long‑Term Incentive Plan (Performance Share Plan replacement)
On the Fairfax acquisition of Brit Limited, the 65% of PSP awards that did not immediately vest were converted by Fairfax
into awards under this scheme. The conversion terms allowed for 60% of the 280p Brit Limited acquisition share price to be
converted into the equivalent value of options to acquire shares in Fairfax at a nil exercise price. Subject to continued service,
the options vest in November 2018 and there are a further seven years to exercise the options.
The fair value of the awards are determined by the market price of the underlying shares at the valuation date. The calculation
of the compensation cost recognised in the income statement in respect of these awards assumes forfeitures due to employee
turnover of 5% per annum prior to vesting, with subsequent adjustments to reflect actual experience.
Reconciliation of movement in the number of awards
Year ended Year ended
31 December 31 December
2017 2016
Number Number
of awards of awards
Outstanding at 1 January 7,712 7,865
Forfeited (312) (153)
Outstanding at 31 December 7,400 7,712
In order to settle share‑based payment awards, in 2015 the Group purchased US$10.7m of preference shares in FFHL Share
Option 1 Corp and that company has purchased shares in Fairfax. Of the purchase, US$3.9m related to this scheme and was
recorded within equity so as to offset the share‑based payment charges recorded in equity on exercise of the awards. There
were no additional shares purchased for this scheme in 2016 and 2017.

So it appears that a small amount of share buyback activity has been earmarked for the unvested Brit share awards at acquisition.

globalfinancepartners

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Re: FRFHF Q3
« Reply #12 on: November 08, 2018, 06:59:50 AM »
Thanks Cigarbutt, I appreciate the thoughtful reply

FairFacts

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Re: FRFHF Q3
« Reply #13 on: November 14, 2018, 09:47:45 AM »
The 13 F was filed today. Not much going on:
1. Sold IBM entirely, last reported at $37.1mil
2. Bought $2.5mil GE stock
3. Bought $10.0mil GM stock.


TwoCitiesCapital

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Re: FRFHF Q3
« Reply #14 on: November 14, 2018, 10:59:26 AM »
Seems like they might have been a bit early on GE. Am looking forward to see how they build out the portfolio now that recent volatility over the past 9-10 months gives them opportunity in a few traditional blue chip companies