Author Topic: BAM - Brookfield Asset Management  (Read 512051 times)

villainx

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Re: BAM - Brookfield Asset Management
« Reply #690 on: October 01, 2018, 08:05:57 PM »
I thought I followed the recent conversation, but got lost somehow.

Spin off subs mean ... spinning off BIP, BPY, etc.?


John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #691 on: October 02, 2018, 06:25:58 AM »
There is also a good article on SA about valuation of BAM by SA author Eric Sprague from February 28th 2018. Here is a link to the outlined article. If I remember correctly, Joel has mentioned it on here before, around the time of the release, however I can't right now find Joel's post about it back then.

New SA article by Eric Sprague on SA about BAM & subs: Seeking Alpha - Eric Sprague [October 2nd 2018]:"The Outstanding Track Record At Brookfield Should Continue".
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StevieV

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Re: BAM - Brookfield Asset Management
« Reply #692 on: October 02, 2018, 07:18:03 AM »
I thought I followed the recent conversation, but got lost somehow.

Spin off subs mean ... spinning off BIP, BPY, etc.?

villainx,

BIP, BPY, etc. are already separately listed.  BAM is the GP and also owns units of the various subs (BIP, BPY, etc.).  Packer notes that BAM doesn't get as much credit for the units as the units get standing alone.  That is, if BIP has a share price of $10/share, when BAM owns it, BAM only gets 70% of the valuation, or the equivalent of a $7/share.

As I understand Packer, he would like to see BAM distribute units of the subs to the BAM shareholders.  So, BAM would give each BAM shareholder some BIP and BPY shares.  Theoretically, the value of your BAM shares would only go down the 70%/$7 number, but you would get the full 100%/$10 share for the units standing alone.

I'm not 100% sure I understood your question correctly, so I am sorry if that doesn't answer it.

StevieV

villainx

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Re: BAM - Brookfield Asset Management
« Reply #693 on: October 02, 2018, 10:34:17 AM »
Thanks.  I thought s/he was referring to CEF, or other funds within BAM originally, but as the thread continued, I was less certain.

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #694 on: October 02, 2018, 10:58:05 AM »
Packer [Keith] is a "he". [ : - ) ]
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Spos

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Re: BAM - Brookfield Asset Management
« Reply #695 on: October 02, 2018, 12:18:47 PM »
It has little to do with long-term or short-term but how the market values these types of holding companies of other companies.  The market puts a discount on them.  When you buy you buy at a discount but when you sell you also sell at discount & you as a minority shareholder have no influence on this.  If BAM buys BPY at full price & the market puts a discount on the shares of BPY held by BAM is that value enhancing?  It is only enhancing if somehow the hold co discount is reduced.  Initially it is value destroying & will only be enhanced if the discount is reduced to zero of it BPY's price appreciates to make up for the discount. 

How can this discount be reduced?  Two ways.  Spin-off the subs or the subs become a smaller percentage of BAMs value over time.  This situation is akin to Loews mentioned above a continuous discount until liquidation.  The key difference here is if Loews sells a majority stake they can lose control but if BAM spins off its LP units it does not loose control.  So what is advantage of BAM to hold these LP units?  Not very much IMO.  If the AM required cash flows for some reason I could see the benefit but the AM does not need cash flow so IMO the benefit is deminimus.   

Packer 

I think you evaluate the BPY on its return potential, as a capital allocation decision like any other.  If they are buying an undervalued security, then great.  I don't think the effect of these purchases on the BAM share price is important.  If the market reaction is negative and you have money leftover for buybacks, that could be a good thing.

I do agree that these situations are frustrating to minority shareholders and that they deserve a discount, but I think you have to look at it from management's point of view, the people who really count.  This represents all their net worth, running this is what they will be doing for a long time and even if they want to maximize their returns, they don't really have an incentive to close any holdco discounts.  They will always have the spinoff as an option to close the discount.  In the meantime they can repurchase shares at a discount.  IMO, this can almost become like an American call option of non-dividend paying stocks from their point of view, where you have no incentive to exercise early and as such the investment horizon automatically becomes very long, longer than even committed value investors. 

I think in the end, this Holdco model becomes more prevalent than the John Malone model as the controlling shareholders/management just don't need that one-time bump in valuation.



chrispy

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Re: BAM - Brookfield Asset Management
« Reply #696 on: October 02, 2018, 12:23:51 PM »
Doesn't management own most of their stuck with Partners Value, sothey really hold it with another hold co?

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #697 on: October 02, 2018, 12:49:06 PM »
chrispy,

What is your own answer [, based on doing some work.]?
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gokou3

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Re: BAM - Brookfield Asset Management
« Reply #698 on: October 02, 2018, 01:01:11 PM »
Doesn't management own most of their stuck with Partners Value, sothey really hold it with another hold co?

Going from memory, management owns 90% of PVF.UN (Partners Value LP), which in turns own 20% of BAM directly or through other funds.  Last time I checked, PVF.UN itself has a holdco discount of ~30% based on the market value of its holdings.  So if you consider BAM has a holdco discount, then PVF is doubly discounted.

chrispy

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Re: BAM - Brookfield Asset Management
« Reply #699 on: October 02, 2018, 02:23:18 PM »
Goku described exactly what I was hinting, if Partners is any indicator, management is not concerned about a holdco discount today.
« Last Edit: October 02, 2018, 02:33:20 PM by chrispy »