Author Topic: Fairfax acquires Brit PLC  (Read 20870 times)

giofranchi

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Re: Fairfax acquires Brit PLC
« Reply #30 on: February 19, 2015, 03:09:57 AM »
So FFH agreed to pay £3.05 per share in cash, consisting of £2.80 in cash and the expected 2014 final dividend, payable by Brit, of £0.25 in cash to Brit shareholders.

… I am not sure I understand this clearly: so, FFH has paid £3.05 or £2.80 per share?... After all, FFH was not a Brit shareholder in 2014, right?... Therefore, no 2014 final dividend should be paid by Brit to FFH…

What am I missing here?

Gio
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petec

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Re: Fairfax acquires Brit PLC
« Reply #31 on: February 19, 2015, 03:26:22 AM »
So FFH agreed to pay £3.05 per share in cash, consisting of £2.80 in cash and the expected 2014 final dividend, payable by Brit, of £0.25 in cash to Brit shareholders.

… I am not sure I understand this clearly: so, FFH has paid £3.05 or £2.80 per share?... After all, FFH was not a Brit shareholder in 2014, right?... Therefore, no 2014 final dividend should be paid by Brit to FFH…

What am I missing here?

Gio

My understanding is that the 25p will be paid in 2015 and will all go to FFH as the 100% shareholder on the record date.   So they pay 305 and get 25p back, rather than paying 305 after the 25p has gone to the previous owners.
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WhoIsWarren

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Re: Fairfax acquires Brit PLC
« Reply #32 on: February 19, 2015, 04:14:49 AM »
From the press release:

"Under the terms of Fairfax’s offer for the Brit Shares (the “Offer”), Brit shareholders will be entitled to receive 305 pence in cash per Brit Share (the “Brit Offer Price”), inclusive of any final dividend for the year ended December 31, 2014."

petec, my understanding is that FFH will be paying 305p (not a net 280p, as you suggest).  Shareholders as at the record date are the ones who will receive the dividend and, while the record date hasn't been determined yet, it would be highly unusual in my experience for the acquirer to receive the dividend.  So as I see it, the current shareholders of Brit -- i.e. Apollo, CVC et al -- will receive 25p per share as a dividend, in addition to the 280p per share "ex-div".


giofranchi

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Re: Fairfax acquires Brit PLC
« Reply #33 on: February 19, 2015, 04:16:40 AM »
My understanding is that the 25p will be paid in 2015 and will all go to FFH as the 100% shareholder on the record date.   So they pay 305 and get 25p back, rather than paying 305 after the 25p has gone to the previous owners.

Ok! But it seems to me that FFH gets the dividend from money earned by Brit during 2014, a year in which FFH’s capital was invested somewhere else, not in Brit.

In other words what I mean is the following: for £3.05 per share FFH is buying not only Brit’s future earnings from 2015 onward, but also Brit’s 2014 final dividend paid out from Brit's 2014 earnings.

Am I wrong?

Gio
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giofranchi

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Re: Fairfax acquires Brit PLC
« Reply #34 on: February 19, 2015, 04:59:13 AM »
Let’s suppose Brit pays out 100% of 2014 earnings. In June Brit declared an interim dividend of £0.0625 and now a final dividend of £0.25. This means that 2014 full year earnings have been: £0.0625 + £0.25 = £0.3125, which would be consistent with the statement that FFH is paying less than 10x 2014 earnings.

Now, given the fact Brit has earned £0.142 during the first half of 2014, the second half earnings should be: £0.3125 - £0.142 = £0.1705. Which added to net tangible assets at the end of June 2014 give us a net tangible assets at the end of 2014: £1.794 + £0.1705 = £1.9645.

Then, if we subtract the £0.25 final dividend, we get: £1.9645 - £0.25 = £1.7145.

And the multiple paid by FFH should be: £2.80 / £1.7145 = 1.63.

Is this almost right?

Now let’s look at it this way: if Brit keeps declaring dividends in 2015 which are in line with those declared for 2014, FFH will receive a £0.3125 / £2.80 = 11.16% dividend yield on the cash it has used to purchase Brit + Brit’s float to invest.
Am I looking at this in the right way? If so, not bad! What do you think?

Gio
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petec

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Re: Fairfax acquires Brit PLC
« Reply #35 on: February 19, 2015, 05:16:50 AM »
Let’s suppose Brit pays out 100% of 2014 earnings. In June Brit declared an interim dividend of £0.0625 and now a final dividend of £0.25. This means that 2014 full year earnings have been: £0.0625 + £0.25 = £0.3125, which would be consistent with the statement that FFH is paying less than 10x 2014 earnings.

Now, given the fact Brit has earned £0.142 during the first half of 2014, the second half earnings should be: £0.3125 - £0.142 = £0.1705. Which added to net tangible assets at the end of June 2014 give us a net tangible assets at the end of 2014: £1.794 + £0.1705 = £1.9645.

Then, if we subtract the £0.25 final dividend, we get: £1.9645 - £0.25 = £1.7145.

And the multiple paid by FFH should be: £2.80 / £1.7145 = 1.63.

Is this almost right?

Now let’s look at it this way: if Brit keeps declaring dividends in 2015 which are in line with those declared for 2014, FFH will receive a £0.3125 / £2.80 = 11.16% dividend yield on the cash it has used to purchase Brit + Brit’s float to invest.
Am I looking at this in the right way? If so, not bad! What do you think?

Gio

I think your maths is correct if the earnings are sustainable - probably why the market liked the deal so much.

For me it is mildly transformative in that it swings the mix of insurance businesses significantly towards the quality end (Odyssey, Zenith, Fairfax Asia, Brit) and away from the parts that aren't necessarily bad but have struggled more (Crum, Northbridge).   That's the impact for me.
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petec

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Re: Fairfax acquires Brit PLC
« Reply #36 on: February 19, 2015, 05:21:26 AM »
From the press release:

"Under the terms of Fairfax’s offer for the Brit Shares (the “Offer”), Brit shareholders will be entitled to receive 305 pence in cash per Brit Share (the “Brit Offer Price”), inclusive of any final dividend for the year ended December 31, 2014."

petec, my understanding is that FFH will be paying 305p (not a net 280p, as you suggest).  Shareholders as at the record date are the ones who will receive the dividend and, while the record date hasn't been determined yet, it would be highly unusual in my experience for the acquirer to receive the dividend.  So as I see it, the current shareholders of Brit -- i.e. Apollo, CVC et al -- will receive 25p per share as a dividend, in addition to the 280p per share "ex-div".

I think the effect is the same: either way, FFH are paying 2.80 for the ex-div book value of the company.   
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WhoIsWarren

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Re: Fairfax acquires Brit PLC
« Reply #37 on: February 19, 2015, 05:27:30 AM »
Yep. Mountain out of molehill and all that. I should sit back down and be quiet  ;)

giofranchi

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Re: Fairfax acquires Brit PLC
« Reply #38 on: February 19, 2015, 05:50:46 AM »
If you think that Brit investments in June 2014 were worth £2,564.2 million and FFH is using (£1,220 / 305) x 280 = £1,120 million of its cash, and you assume HWIC could earn their historical 9% return on investments, FFH in addition to Brit’s dividend could achieve another £2,564.2 x 0.09 = £231 / £1,120 = 20.6% return on the cash employed.

Furthermore, £505 million in Brit’s portfolio are cash and equivalent. Therefore, the true cash used by FFH is: £1,120 - £505 = £615 million.

Imo the market hasn't appreciated this deal highly enough! ;)

Gio
« Last Edit: February 19, 2015, 05:52:48 AM by giofranchi »
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petec

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Re: Fairfax acquires Brit PLC
« Reply #39 on: February 19, 2015, 06:26:36 AM »
Yep. Mountain out of molehill and all that. I should sit back down and be quiet  ;)

Ha ha!   I'm a little hungover today and you certainly had me scratching my head!   Along with a friend who is making my head hurt by trying to persuade me of the benefits of a full-reserve banking system, it's been a taxing day ;)
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