Geoff Gannon August 8, 2006

Some News Items and Worthwhile Articles


The nation’s largest rent to own operator, Rent-A-Center (RCII), will acquire Rent-Way (RWY) for $10.65 a share in cash. Rent-A-Center values the transaction at $567 million – much of the purchase price is attributable to the assumption of long-term debt. Rent-A-Center is certainly an interesting business; the stock was quite a bit cheaper a year ago.

Press Release

Warren Buffett’s Berkshire Hathaway (BRK.B) reported its financial results for the second quarter of 2006. As had been widely reported, catastrophe writing increased substantially.

Reuters / 10-Q


Leucadia National (LUK) made a few changes to its investment portfolio. Leucadia added shares of Eastman Chemical (EMN), started a new position in Lucent (LU), reduced its holdings in Parkervision (PRKR), and sold out its position in UAL Corporation (UAUA).

GuruFocus / 13-F

Bill Miller of Legg Mason Value Trust (LMVTX) said that fund had a “dreadful” second quarter. His quarterly letter to shareholders cited two very different mistakes regarding homebuilders and energy stocks. Value Trust was too quick to invest in homebuilders – and too slow to invest in energy companies.

Miller acknowledged that Amazon (AMZN)eBay (EBAY)Yahoo (YHOO)Expedia (EXPE), and Google (GOOG) “have traded off on some degree of angst about company-specific near-term issues.” However, in his opinion, “these companies represent superior economic franchises with the ability to earn above the cost of capital as far as the eye can see, and the market’s myopic, obsessive focus on what is going on for the next three or six months doesn’t alter the business value.”

Baltimore Business Journal / Quarterly Letter


About a week ago, Rick of Value Discipline wrote an excellent post entitled “Returns Accrue When Accruals Don’t”. The post discusses the relationship between net income and cash flow from operations. I highly recommend reading both the post and the three comments to it. It’s a very important concept – and as Rick points out, it’s not the sort of thing you’ll hear about on CNBC.

Post / Visit Value Discipline

Bill of Absolutely No DooDahs takes on another important yet rarely discussed topic, share buybacks. I can’t say I agree 100% with every point Bill makes in his post entitled “Buying it Back Yet Again”. However, I do agree with his method of taking a logical look at an operation most investors simply assume is as wholesome as apple pie. Buybacks are a topic I really should take up on this blog at some time, especially because some of Bill’s criticisms are perfectly valid.

Post / Visit Absolutely No DooDahs

George of Fat Pitch Financials notes that he bought some Realogy (H), one of the two spin-offs from Cendant (CD). Realogy and Wyndham Worldwide (WYN) were spun off from Cendant in the hopes of unlocking shareholder value.

As many articles, broadcasts, and blogs have noted, breaking up conglomerates has become almost as popular as assembling them. Well, that’s probably an overstatement. Breaking up a company doesn’t do much for the ego; so, it’s rather less likely to appeal to CEOs.

So far, the sum of Cendant’s parts is trading for less than the former whole. However, spin-offs do tend to provide more bargains than most corners of the market, and Realogy is an interesting business. So, you’ll probably be reading more about Realogy on various value blogs in the days and weeks ahead. Who knows – you might even read something about it here.

Post / Visit Fat Pitch Financials

John Bethel of Controlled Greed outlined “The Case for BCE” in a recent post. BCE Inc. (BCE) is Canada’s largest telecom company. BCE also provides content and has stakes in CTV and The Globe and Mail. CTV is a major Canadian broadcaster; The Globe and Mail is Canada’s leading national newspaper.

 / Visit Controlled Greed

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