Author Topic: SRG - Seritage Growth Properties  (Read 535294 times)

Parsad

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Re: SRG - Seritage Growth Properties
« Reply #670 on: August 01, 2018, 08:36:41 PM »
I think the facts are incomplete here. Sokol held shares already, but he bought more after taking the idea to Buffett and their subsequent discussion of why the business would be a good fit for Berkshire.
In effect, Sokol bought knowing he will be selling to brk at higher price after Web make the offer. He is doing a trade in the opposite direction, at the cost of brk. In this case, who got hurt ? Nobody.

Conflicts of interest do not occur solely if a party is hurt.  The definition is "a situation in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity."

If that is the definition most people use, then both Sokol and Buffett had a conflict in their positions...Sokol would benefit if Berkshire bought Lubrizol at a higher price...Buffett benefited as SRG's stock price increased 15% based on the news that SRG refinanced their loan through Berkshire subsidiaries.

How the hell does no one see this?  Cheers!
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Lakesider

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Re: SRG - Seritage Growth Properties
« Reply #671 on: August 01, 2018, 08:57:26 PM »
Usually you can get around conflicts by providing full disclosure, details of which have been disclosed.

Would Warren lend SRG money at 7% if he didn't have own equity? Probably, berkshire are in the insurance biz after all. WB bought the equity because he sees the value there, he bought the debt because he sees value there. The whole thesis is undervalued real estate, given that the liquidity issues are now sorted SRG is good for the credit.


rb

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Re: SRG - Seritage Growth Properties
« Reply #672 on: August 01, 2018, 09:52:11 PM »
Sanjeev, I will have to respectfully disagree with you.

A lot has been said on this so I won't quote all of it to avoid clogging pages. But what Sokol did was essentially front running, and front running is bad. However his offense was not towards Berkshire shareholders. Sokol's offense was towards the Lubrizol shareholders whom he deprived of Berkshire's bid by buying their shares. The offense towards Berkshire shareholders was that he damaged the squeaky clean brand by engaging in front running that wasn't technically front running because of technicalities.

So obviously the SRG situation is different that the Lubrizol situation. I think the situation you've described in a previous post where you would use your investors money in the fund to help an investment you hold a personal stake in is a great example that applies to this situation. That is more of a typical agency problem. The thing is that when this sort of atrocity typically happens the agent has little financial stake but great control over an organization. Then uses said oprgaziation's resources to bail out a situation in which he has great net worth in.

In the case of Buffett and Berkshire, the situation is again different. Buffet's wealthis mainly in Berkshire. The SRG investment is a minuscule fraction of is worth. Completely different from the typical agency problem. Furthermore as others pointed out, SRG didn't get a sweetheart deal from BRK.

Let me put this another way. Let's assume that that JPM somehow goes into the ditch. Should Buffett and Berkshire pass on a BofA type deal with JPM just because Buffett owns the common in his PAs?

Parsad

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Re: SRG - Seritage Growth Properties
« Reply #673 on: August 02, 2018, 12:09:18 AM »
A lot has been said on this so I won't quote all of it to avoid clogging pages. But what Sokol did was essentially front running, and front running is bad. However his offense was not towards Berkshire shareholders. Sokol's offense was towards the Lubrizol shareholders whom he deprived of Berkshire's bid by buying their shares.

If this is an offense to Lubrizol shareholders, then every activist manager out there who finds a buyer for a company they've invested in is doing the same thing.  Sokol was thoroughly investigated by the SEC and nothing happened.

In the case of Buffett and Berkshire, the situation is again different. Buffet's wealthis mainly in Berkshire. The SRG investment is a minuscule fraction of is worth.

Martha Stewart would agree with you, but the Justice Department thought differently.

Let me put this another way. Let's assume that that JPM somehow goes into the ditch. Should Buffett and Berkshire pass on a BofA type deal with JPM just because Buffett owns the common in his PAs?

Yes, until he's disposed of any shares of JPM he owns personally. 

Doesn't matter if it's $1 or $1B...conflict is conflict...it's not based on a dollar amount.  If you were golfing and bet someone big or small...the amount is a moot point if you aren't keeping score properly.  Cheers!



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rolling

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Re: SRG - Seritage Growth Properties
« Reply #674 on: August 02, 2018, 03:43:53 AM »
A lot has been said on this so I won't quote all of it to avoid clogging pages. But what Sokol did was essentially front running, and front running is bad. However his offense was not towards Berkshire shareholders. Sokol's offense was towards the Lubrizol shareholders whom he deprived of Berkshire's bid by buying their shares.

If this is an offense to Lubrizol shareholders, then every activist manager out there who finds a buyer for a company they've invested in is doing the same thing.  Sokol was thoroughly investigated by the SEC and nothing happened.

In the case of Buffett and Berkshire, the situation is again different. Buffet's wealthis mainly in Berkshire. The SRG investment is a minuscule fraction of is worth.

Martha Stewart would agree with you, but the Justice Department thought differently.

Let me put this another way. Let's assume that that JPM somehow goes into the ditch. Should Buffett and Berkshire pass on a BofA type deal with JPM just because Buffett owns the common in his PAs?

Yes, until he's disposed of any shares of JPM he owns personally. 

Doesn't matter if it's $1 or $1B...conflict is conflict...it's not based on a dollar amount.  If you were golfing and bet someone big or small...the amount is a moot point if you aren't keeping score properly.  Cheers!
We shouldn't be fundamentalists. Yes, there is a conflict of interest. Yes, it must be looked into with care. And, Yes, the first thing I thought was: "Doesn't he own the common?".

But the real questions are:
1- Is this a good deal for Berkshire? (it seems)
2- Did someone get hurt because of this (no, it wasn't the case with Lubrizol, where Sokol bought someone out after knowing it was likely to be taken out quickly... and yes, it is a big deal, I once sold a very big position on a huge 2 day rise, just to realize that the results that went out at the end of this rise meant I made a very bad deal, and those deals happened because somebody knew the results in advance... what Sokol did might not be technically abuse of priviledged information but it certainly feels like such; not the case with this Buffett deal)
3- Does this reinforce the idea that buffett acts in the best interest of shareholders? (yes)
My usual portfolio: Highly concentrated (up to 3 or 4 positions) in smallcaps and microcaps.

Spekulatius

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Re: SRG - Seritage Growth Properties
« Reply #675 on: August 02, 2018, 04:22:56 AM »
I agree with rolling here that if you do define conflict of interest too narrow, the rule would become too restrictive.

The deal was fair by any measure and WEB  SRG holding were fairly long term and well disclosed. Martha Stuart was convicted of insider trading and lying in court. Sokol has recently purchased Lubrizol stock, then peddled it to WEB without disclosing his interest. Very different cases here. While I think one needs to tread very carefully in these situations, I think this deal would have passed (and probably did pass) any internal review.
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gfp

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Re: SRG - Seritage Growth Properties
« Reply #676 on: August 02, 2018, 06:10:30 AM »
Again, I don't see an issue with the conflict or lack thereof.  How far do you take it - JPM is often a joint underwriter of Berkshire and Berkshire subsidiary debt.  Warren is directing some of that business to JPM, instead of exclusively using a consortium of banks like BAC, WFC, GS that Berkshire has an equity interest in.  Is he directing Berkshire business to JPM to help his personal holding in JPM at the expense of Berkshire Hathaway shareholders' interest to have more business at BAC WFC and GS?  It gets goofy quickly.  The SRG equity was uninvestable by Berkshire.  The SRG loan was investable by Berkshire.  Pretty clean conflict resolution.

The Sokol situation was a little more nuanced than most of the posts suggest.  There was a very detailed board of directors report on the matter.  Sokol didn't own Lubrizol until Citi investment bankers included it in a list of acquisition targets he was looking at for Berkshire, in his capacity as a Berkshire manager.  Then he pitched the company to Buffett who dismissed it - not interested.  David Sokol then bought some Lubrizol stock.  At that point the inside information he had was, "David Sokol likes Lubrizol, Warren Buffett not interested in buying Lubrizol."  After that he got filled on some more GTC buy orders for additional shares.  At some point, Warren met with Lubrizol management and changed his mind - liked the company and became interested in bidding for it after all. 

The sin with Sokol was a violation of Berkshire's trust because he didn't tell Warren all of the details.  He told Warren he owned the stock, but not when he purchased it or how he came to be aware of / interested in it (recently and through a Citi investment banker with Berkshire as the client).  It wasn't a criminal offense and was never prosecuted for the simple reason that the only insider information Sokol had at the time of his purchases was, "Warren Buffett is NOT interested in buying Lubrizol."

LongTermView

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Re: SRG - Seritage Growth Properties
« Reply #677 on: August 02, 2018, 08:31:38 AM »
IMO there was a greater potential for conflict back when Blue Chip Stamps wasn't wholly owned.

GCA

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Re: SRG - Seritage Growth Properties
« Reply #678 on: August 02, 2018, 09:39:12 AM »
The idea that WEB's $70MM SRG position even figured into the decision to invest $2B of debt into SRG is kind of laughable.

I mean, sure there is a teeny tiny conflict, but let's be realistic here.

sleepydragon

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Re: SRG - Seritage Growth Properties
« Reply #679 on: August 02, 2018, 09:46:48 AM »
Btw, why everybody assume this bond investment is by Buffett? Itís only 2b. Could very likely by TT