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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Dave who wrote (20705)	2/20/2005 11:38:19 AM
From: Larry S.	Respond to of 78673

Another company that has been hit by the SBC/T deal is LUK - Leucadia National. LUK is a Buffett like company with schrewd management and secretive ways. They purchased WilTel, the bankrupt Williams communications and were the fibre backbone for SBC. Now SBC will use T's system. LUK has falled from 47 to 33 and it may not be over, or it may be one heck of a bargain. larry: Why Leucadia's a Laggard By LESLIE P. NORTON February 20, 2005 Few executives have won as many kudos as Chairman Ian Cumming and President Joseph Steinberg of Leucadia National. But halting the stock's current slide may prove a big challenge. The executives have racked up a handsome annual return for shareholders over 15 years and are often compared with Warren Buffett. Their formula for success: Buy cheap assets, often with tax advantages, and nurse them back to health. So in late 2003, they acquired WilTel, the former bankrupt Williams Communications, and its nationwide fiber-optic network for $780 million. And in classic Leucadia fashion, they snapped up $3.4 billion in net operating losses that could be used to offset taxes on future earnings. [Leucadia National] But that purchase could now prove ill-fated. Leucadia shares are trading at about $34, down from a 52-week high of $47 in December. That's because SBC Communications, which uses WilTel's fiber-optic network and accounts for 70% of its revenue, announced plans to buy AT&T Corp. and use AT&T's network instead. "It's hard to see this as anything but a big negative," says Scott Cleland, chief executive of Precursor Group, a telecom consulting firm in Washington, D.C. SBC may have to pay WilTel as much as $200 million in compensation for backing out of their contract. Still, there are few obvious big customers to replace SBC -- and its revenue stream. Albert Meyer, an analyst at 2nd Opinion Research in Plano, Texas, who wrote the report that first called attention to Tyco's corporate governance and accounting problems, sees WilTel with revenues of some $400 million a year after SBC's departure. In the first half of 2004, WilTel had $717 million in revenue. So could Leucadia sell WilTel outright? It isn't likely to be attractive without an anchor customer like SBC. And the tax benefits can't be used without profits -- which could be complicated by dropping revenues. That means Leucadia shares could keep falling. Mr. Meyer recently published a report suggesting that excluding WilTel, Leucadia was worth around $17 a share, adjusted for a 3-for-2 stock split. The stock's future depends on the shrewdness of Messrs. Cumming and Steinberg, who adroitly sold 1.2 million shares after splitting the stock and boosting its dividend late last year -- as it happens, just weeks before the SBC announcement. Says Robert Willens of Lehman Brothers: "I believe Leucadia is in the position of having to acquire something."