NY Times today reported that “…an investor group including Berkshire Hathaway Inc. had agreed to exchange $457 million of Level 3's convertible bonds for stock now worth double that amount….Warren E. Buffett, …and his partners, Longleaf Partners Funds and Legg Mason, Inc., bought $500 million of Level 3's bonds last July…Since then, shares in the company…have more than doubled…”WSJ today shows that “short interest” in Leucadia Nat'l increased 150% during the last month to 1,393,157 shares. While this is not a significant figure relative to the “short interest” market, I thought some on this board may be interested.Mistermarket
For the dimmer members of this board, what does this mean/imply?M
mdtls -If you are referring to the Leucadia short interest increase it may not mean anything. Or, it may mean short sellers have unearthed something really, really bad about LUK and think it will drop like a rock. More likely, the increase is related to LUK's recent offer to acquire the rest of WilTel that it doesn't already own; arbitrageurs would short the acquirer, LUK, and go long the target, WilTel. Just a guess.
NY Times today reported that “…an investor group including Berkshire Hathaway Inc. had agreed to exchange $457 million of Level 3's convertible bonds for stock now worth double that amountWhy is everybody assuming that Berkshire will keep the common? Nine percent debt is one thing and common another.Jack
While I have no idea whether Berkshire will keep the Level3 common shares, this has been (and should continue to be) and interesting investment for us to watch.When the original debt investment was made, L3 was in a well documented predicament. We further know the relationship between Buffett and Scott at L3. Although relative to Berkshire's shareholder's equity and even then current float, the investment in L3 was miniscule. However, I think we're seeing a clear example of a "risk-managed" investment in a then depressed industry where Buffett saw upside potential for his $. Obviously, turning $1 into $2 is a great play.On a larger, conceptual scale, the investment seems pure Graham from the perspective of making the investment in debt...then sit back and wait...if the circumstances develop permitting the conversion to common stock (and it's decided to be advantageous) then do so...then sit back and wait...Again, this is a "peanut" sized investment for Berkshire, but a good example of how to make an educated, semi-controlled-risk investment with lots of upside.Because of the relatively insignificant size of the original L3 investment, I've not dedicated any time to researching/analyizing L3, but I do recall a Forbes (or perhaps Fortune) article some months back insinuating that L3 could be a front-runner going forward in the telecom arena.Should be interesting.Mistermarket