Author Topic: EAF - GrafTech  (Read 31606 times)

valueinvestor

  • Full Member
  • ***
  • Posts: 102
Re: EAF - GrafTech
« Reply #80 on: May 23, 2019, 09:39:53 AM »
If you want to invest with BAM, you need to invest IN BAM. As others have pointed out, it's not BAM's duty to care for minority shareholders, it's their duty to earn returns for their LP's.

TOO shareholders were stupid IMO: BAM's incentives were as a GP and debtholder (because that's how the majority of their investment was structured) not as a shareholder. BAM is doing exactly the right thing for BAM: taking control of the whole thing. I did not go long TOO for that exact reason.

EAF is in a different boat because BAM has already monetized it. Would they take it back? Maybe, but I wouldn't be pissed off about it, I'd say "yea, that's BAM being BAM." I'm also a BAM shareholder, and I don't take a loss personally, I take it as a situation where I made a mistake and move on. People need to grow the heck up and realize who they're getting into bed with.

I agree with you from an outsiders perspective. Understanding each parties' incentives is crucial in investing, and in this case it looks like BAM's incentives had been misunderstood. One of the original presentations from a fund listed on the letter to TOO has BAM's involvement as a positive in big bold letters, its just simply wrong and frankly naive. BAM is doing the logical thing here and it is what is best for their investors, they could care less about the minority investors and the idea that this will harm the BAM brand is laughable.

I legitimately do not think there is even a governance issue going on at the moment with TOO and minority shareholders are just pissed off they got the rug pulled out from under them. This is not the first time shareholders listed in the letter have gotten burned by not understanding how distressed investing works. Is this really a BAM issue, or is this really an issue of buy and hold investors style drifting into distressed?

I do not think people were complaining about how they got burned, or at least in my case. I was more frustrated on finding another investment, than being mad at BAM. Whether I am right or wrong, it does not changes the fact that they are buying us out. However, I do hold the view that if they (or anyone really) keep screwing minority investors, especially if they screw them harder in the future, many people would not buy what they sell, which would significantly impair their ability to exit. Are they unethical? Maybe. Are they going to have a brand that will diminsh? No. Are people going to be more skeptical in getting into bed with Brookfield? Yes.

That also means getting into bed with them on a holding level, and hence there maybe a discount.


heth247

  • Hero Member
  • *****
  • Posts: 583
Re: EAF - GrafTech
« Reply #81 on: May 23, 2019, 10:12:36 AM »
If you want to invest with BAM, you need to invest IN BAM. As others have pointed out, it's not BAM's duty to care for minority shareholders, it's their duty to earn returns for their LP's.

TOO shareholders were stupid IMO: BAM's incentives were as a GP and debtholder (because that's how the majority of their investment was structured) not as a shareholder. BAM is doing exactly the right thing for BAM: taking control of the whole thing. I did not go long TOO for that exact reason.

EAF is in a different boat because BAM has already monetized it. Would they take it back? Maybe, but I wouldn't be pissed off about it, I'd say "yea, that's BAM being BAM." I'm also a BAM shareholder, and I don't take a loss personally, I take it as a situation where I made a mistake and move on. People need to grow the heck up and realize who they're getting into bed with.

Well it is easy to say TOO shareholders were stupid in the hindsight. But things changed fast, I suspect this take under was not in the cards of BBU until recently when TK sold all of its TOO stake to BBU.

peterHK

  • Full Member
  • ***
  • Posts: 223
Re: EAF - GrafTech
« Reply #82 on: May 23, 2019, 12:37:20 PM »
If you want to invest with BAM, you need to invest IN BAM. As others have pointed out, it's not BAM's duty to care for minority shareholders, it's their duty to earn returns for their LP's.

TOO shareholders were stupid IMO: BAM's incentives were as a GP and debtholder (because that's how the majority of their investment was structured) not as a shareholder. BAM is doing exactly the right thing for BAM: taking control of the whole thing. I did not go long TOO for that exact reason.

EAF is in a different boat because BAM has already monetized it. Would they take it back? Maybe, but I wouldn't be pissed off about it, I'd say "yea, that's BAM being BAM." I'm also a BAM shareholder, and I don't take a loss personally, I take it as a situation where I made a mistake and move on. People need to grow the heck up and realize who they're getting into bed with.

Well it is easy to say TOO shareholders were stupid in the hindsight. But things changed fast, I suspect this take under was not in the cards of BBU until recently when TK sold all of its TOO stake to BBU.

But that was always a risk. BAM has been positioned this way for a while now: if the business didn't work out, then they can take it private themselves and they control the GP and the debt. If it works out, then they hold the equity so they're fine.

Their involvement wasn't good or bad, there were a range of outcomes, and the way BAM invests, they need plans to ensure that the outcome for BAM in each of those is favorable. The issue for shareholders is that in a number of those outcomes, the result was good for BAM and bad for shareholders.

peterHK

  • Full Member
  • ***
  • Posts: 223
Re: EAF - GrafTech
« Reply #83 on: May 23, 2019, 12:38:43 PM »
Also, can we get back to talking about Graftech please? If you want to talk about BAM/TOO go to their respective threads.

I'll start:

EAF is really freaking cheap, 60% of FCF is contracted, and they trade today at a 20% levered FCF yield AFTER $300mn of debt repayment.

Spekulatius

  • Hero Member
  • *****
  • Posts: 3543
Re: EAF - GrafTech
« Reply #84 on: May 23, 2019, 12:59:39 PM »
On top of the loss, you might also get unexpectedly worse taxes when you fill out your K-1 on Sales next year. These things work in mysterious ways. Been there before...
I am avoiding LP‘s where an buyout is possible for that very reason. In this case, there weren’t any recent distributions, so it might be OK, but I have heard about cases, where LP‘s had to pay taxes on „Phantom gains“. These also accrue to the buyer of the entity in most cases.
« Last Edit: May 23, 2019, 04:34:59 PM by Spekulatius »
Life is too short for cheap beer and wine.

BG2008

  • Hero Member
  • *****
  • Posts: 1103
Re: EAF - GrafTech
« Reply #85 on: May 23, 2019, 01:38:36 PM »
Also, can we get back to talking about Graftech please? If you want to talk about BAM/TOO go to their respective threads.

I'll start:

EAF is really freaking cheap, 60% of FCF is contracted, and they trade today at a 20% levered FCF yield AFTER $300mn of debt repayment.

PeterHK,

Love the sharp wits and the straight talk.  I guess we're back talking about another BAM sponsored company trading cheaply.  A pattern maybe?


heth247

  • Hero Member
  • *****
  • Posts: 583
Re: EAF - GrafTech
« Reply #86 on: May 23, 2019, 03:01:17 PM »
If you want to invest with BAM, you need to invest IN BAM. As others have pointed out, it's not BAM's duty to care for minority shareholders, it's their duty to earn returns for their LP's.

TOO shareholders were stupid IMO: BAM's incentives were as a GP and debtholder (because that's how the majority of their investment was structured) not as a shareholder. BAM is doing exactly the right thing for BAM: taking control of the whole thing. I did not go long TOO for that exact reason.

EAF is in a different boat because BAM has already monetized it. Would they take it back? Maybe, but I wouldn't be pissed off about it, I'd say "yea, that's BAM being BAM." I'm also a BAM shareholder, and I don't take a loss personally, I take it as a situation where I made a mistake and move on. People need to grow the heck up and realize who they're getting into bed with.

Well it is easy to say TOO shareholders were stupid in the hindsight. But things changed fast, I suspect this take under was not in the cards of BBU until recently when TK sold all of its TOO stake to BBU.

But that was always a risk. BAM has been positioned this way for a while now: if the business didn't work out, then they can take it private themselves and they control the GP and the debt. If it works out, then they hold the equity so they're fine.

Their involvement wasn't good or bad, there were a range of outcomes, and the way BAM invests, they need plans to ensure that the outcome for BAM in each of those is favorable. The issue for shareholders is that in a number of those outcomes, the result was good for BAM and bad for shareholders.

I can argue the same thing for EAF. The critical part is what probability you assign to each outcome. If you tell me that you had the vision a year ago to assign the probability of "taking under at $1.05" to something >20% and used it as one of the main reasons to fail the TOO investment thesis, I have my hats off to you.



« Last Edit: May 23, 2019, 03:52:39 PM by heth247 »

aglittell

  • Newbie
  • *
  • Posts: 6
Re: EAF - GrafTech
« Reply #87 on: May 24, 2019, 10:00:47 AM »
Also, can we get back to talking about Graftech please? If you want to talk about BAM/TOO go to their respective threads.

I'll start:

EAF is really freaking cheap, 60% of FCF is contracted, and they trade today at a 20% levered FCF yield AFTER $300mn of debt repayment.

The valuation does not make sense, even if spot prices crater and approach the 2015 lows. Capital returns should still provide attractive returns.

valueinvestor

  • Full Member
  • ***
  • Posts: 102
Re: EAF - GrafTech
« Reply #88 on: May 24, 2019, 10:24:28 AM »
Also, can we get back to talking about Graftech please? If you want to talk about BAM/TOO go to their respective threads.

I'll start:

EAF is really freaking cheap, 60% of FCF is contracted, and they trade today at a 20% levered FCF yield AFTER $300mn of debt repayment.

The valuation does not make sense, even if spot prices crater and approach the 2015 lows. Capital returns should still provide attractive returns.

Valuation does make sense, because as minority shareholders, we may not benefit from the cheapness of a stock.

rkbabang

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 4449
Re: EAF - GrafTech
« Reply #89 on: May 24, 2019, 10:37:09 AM »
If you were to go into business with a friend and you were going to own 49% of the company and your friend was going to own 51%, would you not consider the fact that your partner has majority control of the company a risk that you should take into account before making your decision to invest?   You would want to assess your partner's capabilities to run the business as well as his likeliness to make a decision that benefits him over you.  Whenever you are thinking of becoming a minority shareholder in a company (which is every investment for most equity investors) this is a risk you should think about.  Assuming everyone else is going to care about you because you think they "should" doesn't seem like a good plan.