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Value + arbitrage

Every 10 shares of Jefferies, now below book, will get you 8 of Leucadia (LUK) when the merger goes through. Though you'll miss out on Crimson Wine Group, something of a gap has now opened between the price of Jefferies and Leucadia shares, as long as Jeffcadia sounds like something you want to own anyway.

RS
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Well, that was short-lived. Jeffcadia still looking attractive, however.
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LUK is now 35% of my assets. I have debated selling all LUK (at 20.05) to buy JEF at 16.40. When receiving 0.81 LUK/JEF share, it would equate to 19.01 paid per LUK share.

I don't think it's worth holding the JEF shares over the next four months for the small arbitrage of 1.04 less the Crimson Wine Group (BV of 0.80). Maybe there is 0.10 or 0.20 in there.
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"I don't think it's worth holding the JEF shares over the next four months for the small arbitrage of 1.04 less the Crimson Wine Group (BV of 0.80). Maybe there is 0.10 or 0.20 in there."

Agree it's a thin arb. I did it this morning for two reasons:

1) I think the deal is a lock; if anything, the ratio would have to be increased on JEF to push it through (don't think that is going to happen). What is the alternative for both shareholders of JEF / LUK - vote down a deal that both managements support, in companies that are essentially bets on management??? I don't see it.

2) Since my LUK shares had a basis slightly higher than the current price, I had losses which aren't wash sales when swapped back to JEF so it's a way to improve tax efficiency.

It's not compelling though as a straight arb given the tiny spread, I agree.

Ben
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It's not compelling though as a straight arb given the tiny spread, I agree

The arb is so small the deciding factor is what you think of the wine biz.
One way you get it, the other way you don't.

Like most such "spinoffs through unattractiveness/irrelevance" it will probably
sell of hugely for a while after it's spun off because there will be
so many shareholders for whom it's not what they way, not the right
industry, not within the owner's mandate, too small to bother with etc.
Thus if you were going to buy one or the other, might be better to go with JEF.
Even if you like the prospects of the wine biz, might be better to buy it after spinoff on the likely dumping.

As an example, Sears spun off Orchard Supply, which was actually fairly well thought of.
It sold off from $24 to $14 before recovering to $28 after the "just dump it" selling was done.
Selloff was 3 weeks, recovery peak was 2 months after spinoff.
Of course it has drifted down to $9 since then, but that's another story.

Jim
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A Close Look at Mini-Berkshire, Leucadia National
http://www.fool.com/investing/general/2012/11/15/a-close-loo...

As of September 30, Leucadia held nearly $800 million in cash and cash equivalents. As a whole, current assets almost cover total liabilities….With a price to book of only 0.82, Leucadia is an attractively priced stock. When compared to the big-boy version of itself, Berkshire, Leucadia is substantially less expensive (though less safe) than the 1.15 times book you pay for Buffett. With a smaller capital base, and therefore larger growth opportunities, I will gladly pay $0.82 on the dollar for the company's assets and sound management.
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I have debated selling all LUK (at 20.05) to buy JEF at 16.40.

It might be worth doing for tax reasons. I sold some high cost LUK lots and replaced them with JEF.
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