Yahoo Finance The so-called 'baby Berkshire' says things are very good across its businesses
Leucadia National (LUK) reported first quarter earnings on Thursday that show a turnaround from a year ago.
For the quarter, Leucadia delivered earnings per share of $0.75 on revenue of around $2.87 billion for the first quarter, an improvement compared to a net loss of $222.9 million, or $0.60 per share, on revenue of nearly $2.02 billion for the same period a year ago.
Often referred to as “baby Berkshire Hathaway,” Leucadia, a holding company, owns businesses in financial services, agriculture, energy, and international telecom, among other industries. As such, Leucadia is considered a bellwether of the economy.
Leucadia, in particular, benefited from another quarter of improving results at investment bank Jefferies, which the conglomerate acquired in November 2012. Richard Handler, who’s led Jefferies since 2001, also became the CEO of Leucadia as part of that transaction.
Improving investor and CEO confidence
“The current operating environment across our portfolio of companies is very good,” Handler told Yahoo Finance.
There are some key things for business leaders to be upbeat.
“Rates are still low and now the fear of the Fed not being able to appropriately raise rates without causing a calamity has abated. Lower taxes should provide a much needed and more effective stimulus to the economy. Regulation will not and should not disappear, but a more thoughtful, realistic, and commercial approach will further improve investor and CEO confidence,” Handler told Yahoo Finance.
Handler, however, cautions that while things are good, they’re not excessively good.
“Generally our client base at Jefferies is more optimistic and looking to invest, hire, build and transact. I would not call the business climate robust or overly optimistic, but people are looking to be more active and aggressive than I’ve seen since the crises,” Handler said, adding, “Of course things can slow or change quickly, and people are still committed to being smart by protecting their downside.”
Taking ‘the call’
Leucadia uses Jefferies to figure out what can be messy and complicated situations at companies, then invest capital, and work with those companies to tackle their issues. Lately, Leucadia has been seeing the benefit from three of these investments that Jefferies made when companies were facing challenges.
In the fall of 2012, electronic trading firm Knight Capital, now KCG Holdings (KCG), had a computer that went awry causing the company to lose $440 million in a matter of minutes. Jefferies injected $125 million, and some partners did the same, helping KCG avoid shutting down. That stake is now worth more than $500 million.
As Handler notes, “Subsequent to the end of the first quarter, Virtu Financial (VIRT) agreed to acquire KCG at a price of $20.00 per share, which would generate a further $98 million gain for our 24% interest in KCG held at Jefferies, most of which we expect to record in our second quarter. The transaction is expected to close during the third quarter. Cumulative revenues since 2012 from KCG and Jefferies’ KCG investment would be $419 million, including fees received by Jefferies for its services.”
Leucadia also saw gains from its stake in HRG Group (HRG). After hedge fund manager Phil Falcone of Harbinger Group had encountered some regulatory troubles, Jefferies initiated a stake in HRG in September 2013 and continued to increase its position. Jefferies has put $475 million into HRG, and the stake is currently valued around $950 million.
Lastly, in January 2015, currency broker FXCM lost more than $200 million after a surprise move from the Swiss central bank to scrap its peg of 1.20 Swiss franc per euro. The following day, Leucadia announced it had put together a rescue package for FXCM. Their $275 million investment is now valued around $575 million.
In total, these are three rescue/fix situations where $875 million of capital has grown to $2.025 billion.
“We will always be on the lookout for special investing opportunities where we can enter at an attractive price, add value by leveraging our internal capabilities and work with management to strategically position the company for everyone’s long term benefit,” Handler told Yahoo Finance.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.
Read more:
