Arohan’s investing life

Hmm, looks like the credit issue is throwing up a lot of bargains! Sometime ago we wrote that Leucadia recently purchased a sizable stake in Americredit. The word is now Leucadia has boosted its stake in Americredit by a factor of 2 and currently owns 22.4% of Americredit with a group of partners. It individually owns about 20.7% stake in the auto-finance company

The following appears in the recent 8-K filed by Americredit (on Feb 6)

Item 8.01 Other Events. On February 6, 2008, the Board of Directors of AmeriCredit approved the acquisition by Leucadia National Corporation and its affiliates (”Leucadia”) of 20% or more of AmeriCredit’s outstanding voting stock. The effect of this action is to make inapplicable the provisions of the Texas Business Combination Law, which, without the action taken by AmeriCredit’s Board of Directors, would prohibit AmeriCredit and Leucadia from entering into any business combination for a period of three years following Leucadia’s acquisition of 20% or more of the outstanding voting stock of AmeriCredit unless approved by two-thirds of AmeriCredit’s outstanding shares not held by Leucadia. AmeriCredit and Leucadia have discussed the terms of a standstill agreement dealing with matters customarily covered in an agreement with a significant minority shareholder, including but not limited to a limit on Leucadia’s ownership in AmeriCredit to 29.9% of the outstanding shares of AmeriCredit’s common stock for a period of two years. There is no assurance that such standstill agreement will be entered into or if entered into, would necessarily be on the same terms as presently being discussed.

Could this mean further increases in this stake are possible?

This is a strong vote of confidence showing a savvy investor like Leucadia believes that atleast some of the stocks in the credit/finance sector have possibly bottomed out

It appears that Leucadia National (LUK) is acquiring a 11,316,200 share stake in AmeriCredit (ACF) which represents 9.9% of AmeriCredit’s outstanding stock. AmeriCredit Corp is an auto-financing company providing financing services to retail consumers as well as dealers. Leucadia’s cost is roughly $12.9 per share, with ACF shares now trading at $11.2 per share as of market closing on Jan 16th, 2008

This has to be viewed in the backdrop of a growing concern in the market that the credit crisis is ready to move into automotive credit sector

Leucadia National is probably one of the best investors in North America today, and for the last two decades an investment in Leucadia stock has outperformed Berkshire Hathaway stock by a wide margin. Leucadia has a propensity to take more ‘risks’ than Berkshire Hathaway and is known to buy deeply troubled companies and turn them around. While their bets may be risky, they have shown remarkable ability to make profits. I have great respect for Steinberg and Cummings, the two partners who run Leucadia National and have own the stock for a while

So does Leucadia think that the credit worries in the auto finance sector are overblown? Possibly. However, they do appear to think that now is a good entry point. ACF is currently trading close to its low for the last 3 years

Something to keep in mind. Automobiles have always been and will always be a depreciating asset and so a typical automobile lender has to consider the credit worthiness and income of the buyer. It is not solely based on the asset value. Therefore, it could be argued that auto loans on average are of much better credit quality than some of the housing loans that were made in the last few years