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Leucadia National: Another Berkshire?
By: TheStockAdvisors.com   Friday, May 11, 2012 3:31 AM
Symbols: LUK

For instance, in October 2007, just as the recession was beginning, it began buying stock in auto-finance company Americredit which provides car loans to customers with bad credit.

Leucadia sold its Americredit stake to General Motors for cash in October 2010, receiving $830.6 million for shares that had cost $428.5 million to buy. That generated an internal rate of return of 29%, compounded.

The company's Berkadia 50/50 joint venture with Berkshire Hathaway is another example of counter-cyclical thinking. It is one of the largest and lowest cost non-bank owned commercial mortgage servicers and originators in the U.S.

The joint venture was established in December 2009 with $434 million in capital, of which half is Leucadia's. Through the end of 2011, Leucadia has received $84.6 million in dividends. Both cash flow and dividends increased in 2011 from 2010.

Leucadia owns a number of other interesting smaller operations, such as the Hard Rock Hotel and Casino in Biloxi; the Crimson Wine Group; oil and gas driller Keen Energy; valve and tube maker Mueller Industries; manufacturers Idaho Timber and Conwed Plastics; and auto dealership joint venture Garcadia.

But its most recent and largest investment is in beef! The simplest way to explain Leucadia's latest acquisition is to quote from the Chairman's letter discussing the purchase of 79% of National Beef Packing for $868 million on Dec. 30.

"While the U.S. is a mature market, global protein consumption is growing at an astounding rate. People across the globe have an ever-growing desire to consume high quality U.S. beef and we will do all that we can to make that possible."

Worried about the outlook for credit markets, Leucadia paid cash for National Beef. It also reduced its total leverage by over 40% by calling $511 million of long-term debt in 2012 and buying back more of its debt in the market over the last three years.

While both Messrs. Cumming and Steinberg are in their 70s, the board of Leucadia recently appointed Justin Wheeler as Chief Operating Officer. Mr. Wheeler has been with the company since 2000 and was largely responsible for the Americredit and National Beef deals.

Leucadia underperformed the S&P 500 in three of the last four years, despite realizing $2 billion in capital gains in the last two years and reducing its leverage. I believe it offers good value at current levels.

I am recommending it for investors willing to undergo some volatility to gain exposure to a widely diversified and well-managed group of businesses run by two of the top investors of the last quarter-century.

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