Leucadia National annual letter to shareholders for the year ended December 31, 2014.
Dear Fellow Shareholders,
We and our entire team have been working diligently to position Leucadia to achieve our number one goal: long-term value creation. We aim to achieve this goal by operating a merchant and investment banking platform that creates, acquires and operates a diversified group of businesses. We want Leucadia to be focused, diversified, driven and transparent. We will only invest where we see value and opportunity that fits our investment profile. We have instilled throughout Leucadia and its businesses a sense of urgency, as well as a constant drive to make things better and more valuable.
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We have accomplished much, occasionally been frustrated and learned something new every day. In this letter, we will share with you our experiences to date and our rationale for many of the decisions we have made. By sharing specific ideas and examples we hope to provide insight into our thought process, how we view the world and where we hope to steer Leucadia over time. We also will give an update on each of our businesses.
Leucadia National: Our First Two Years
Leucadia has realized $2.5 billion in cash from asset sales since the period surrounding our combination. These were generally good businesses, but were ones where either we had too little influence or ability to add value, were not scalable, or were highly illiquid and too big for a company with $10.3 billion of shareholders’ equity.
We have eliminated long-term endeavors we felt were “quasi venture capital” and would have required meaningful further investment with a likelihood of satisfactory returns lower than we would like. In 2013, we closed Sangart, a biotechnology company that had been nurtured for years by Leucadia. This past year, we stopped investing in Lake Charles Clean Energy after it became apparent that our team’s heroic effort could not overcome the challenge of obtaining an acceptable fixed price construction contract. We are continuing to pursue our Oregon LNG terminal project, but the change in energy dynamics, combined with the bureaucratic and political permitting process, are challenging. The burn rate here is modest (single digit millions per year), particularly compared to the two projects we stopped, but we will continue to monitor this closely.
We have also been hard at work looking to deploy fresh capital in smart ways, while operating in an environment where value can be elusive. Since March 1, 2013, we have invested or committed an aggregate of almost $2.2 billion to new investments that have followed two overriding themes:
- Finding unique value opportunities where our entry terms afford us a favorable risk-reward tradeoff-so far, Harbinger, FXCM and Golden Queen; and
- Building businesses with great managers one asset at a time and thereby creating enterprise value-so far, the various Leucadia Asset Management businesses (LAM), Juneau Energy and Vitesse Energy.
Harbinger, the LAM businesses and FXCM all originated from relationships developed at Jefferies, while Vitesse, Juneau and Golden Queen emanated from relationships of the Leucadia deal team.
We and the rest of the Leucadia deal team are also spending much time with our existing businesses. We saw several opportunities to drive growth in these companies, investing a further $534 million over the past two years in Garcadia, Linkem, Conwed, Foursight and HomeFed, including transferring Leucadia’s historic one-off real estate assets valued at $216 million into HomeFed for more shares. We also raised $4.4 billion of long-term capital over these past two years across our businesses at attractive rates.
We own businesses and investments in financial services and a diverse array of other industries (the latter group comprising what we call our “merchant banking” effort). We also maintain meaningful liquidity and have a significant tax NOL we expect to monetize substantially before the end of this decade. The chart below illustrates how we think about and manage Leucadia today (amounts as of 12/31/14, with some pro forma adjustments noted):
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