Thursday, June 8, 2023

Media: The Barclay Family "Lied Like A Finance Minister On The Eve Of A Devaluation"

Repurposing an old line that Warren Buffet repurposed in the 1988 Berkshire Hathaway Chairman's Letter.

In yesterday's "Apparently The FT's Jemima Kelly's Campaign To Destroy The Remaining Billionaire Barclay Bro Continues Apace" I naively displayed my trusting, borderline Pollyanna nature by including the Barclay fam's denial of any problems.

Today,'s Senior Finance Editor directs our attention to an article in the very media property under discussion:

Short thread

The Telegraph's version of the story begins:

Lloyds Banking Group has taken ­control of the Telegraph Media Group (TMG) in an unprecedented move by a bank in modern times.

The lender has appointed receivers to manage the group while investment bankers run an auction which is expected to draw interest from rivals, wealthy individuals and funds potentially linked to Gulf states.

Lloyds has been in dispute with the Barclay family, who have owned The Daily Telegraph since 2004, over debts to its Bank of Scotland subsidiary, allegedly approaching £1 billion, which were secured against the publisher.

In a day of fast-moving developments, Lloyds seized a Bermuda-based entity in the Barclay family business which is a parent company to The Telegraph and The Spectator magazine.
The change of control is expected to have no impact on the operations of The Telegraph or its staff.

The receivers also confirmed that the publisher is not entering administration and is in good financial health....


Mr. Buffet's story from that long-ago Spring of 1988 begins:


In past reports we have told you that our insurance subsidiaries sometimes engage in arbitrage as an alternative to holding short-term cash equivalents. We prefer, of course, to make major long-term commitments, but we often have more cash than good ideas. At such times, arbitrage sometimes promises much greater returns than Treasury Bills and, equally important, cools any temptation we may have to relax our standards for long- term investments. (Charlie’s sign off after we’ve talked about an arbitrage commitment is usually: “Okay, at least it will keep you out of bars.”) 

During 1988 we made unusually large profits from arbitrage, measured both by absolute dollars and rate of return. Our pre- tax gain was about $78 million on average invested funds of about $147 million. 

This level of activity makes some detailed discussion of arbitrage and our approach to it appropriate. Once, the word applied only to the simultaneous purchase and sale of securities or foreign exchange in two different markets. The goal was to exploit tiny price differentials that might exist between, say, Royal Dutch stock trading in guilders in Amsterdam, pounds in London, and dollars in New York. Some people might call this scalping; it won’t surprise you that practitioners opted for the French term, arbitrage. 

Since World War I the definition of arbitrage - or “risk arbitrage,” as it is now sometimes called - has expanded to include the pursuit of profits from an announced corporate event such as sale of the company, merger, recapitalization, reorganization, liquidation, self-tender, etc. In most cases the arbitrageur expects to profit regardless of the behavior of the stock market. The major risk he usually faces instead is that the announced event won’t happen. 

Some offbeat opportunities occasionally arise in the arbitrage field. I participated in one of these when I was 24 and working in New York for Graham-Newman Corp. Rockwood & Co., a Brooklyn based chocolate products company of limited profitability, had adopted LIFO inventory valuation in 1941 when cocoa was selling for 5¢ per pound. In 1954 a temporary shortage of cocoa caused the price to soar to over 60¢. Consequently Rockwood wished to unload its valuable inventory - quickly, before the price dropped. But if the cocoa had simply been sold off, the company would have owed close to a 50% tax on the proceeds. 

The 1954 Tax Code came to the rescue. It contained an arcane provision that eliminated the tax otherwise due on LIFO profits if inventory was distributed to shareholders as part of a plan reducing the scope of a corporation’s business. Rockwood decided to terminate one of its businesses, the sale of cocoa butter, and said 13 million pounds of its cocoa bean inventory was attributable to that activity. Accordingly, the company offered to repurchase its stock in exchange for the cocoa beans it no longer needed, paying 80 pounds of beans for each share. 

For several weeks I busily bought shares, sold beans, and made periodic stops at Schroeder Trust to exchange stock certificates for warehouse receipts. The profits were good and my only expense was subway tokens. 

The architect of Rockwood’s restructuring was an unknown, but brilliant Chicagoan, Jay Pritzker, then 32. If you’re familiar with Jay’s subsequent record, you won’t be surprised to hear the action worked out rather well for Rockwood’s continuing shareholders also. From shortly before the tender until shortly after it, Rockwood stock appreciated from 15 to 100, even though the company was experiencing large operating losses. Sometimes there is more to stock valuation than price-earnings ratios....

....MUCH MORE, he gets to the duplicitous government official further down the page.

Cntl+f - minister - if interested. 

For more on Warren and the Dark Goddess see 2010's " Living La Vida Cocoa: Warren Buffett, Berkshire Hathaway and the Chocolate Wars (BRK.A; BRK.B; CBY; KFT; HSY)"

p.s. I'm not really Pollyanna-ish. More of a "Trust but verify, then lay off some of the risk and hedge the rest" sort of person.