Leucadia National Corporation (LUK) recently sold 92.4 million of common shares of Fortescue Metals Group Ltd. for approximately $609.2 million. The transaction resulted in a net securities gain of $527.4 million, to be recorded during the second quarter of 2011.
Fortescue is a publicly traded company listed on the Australian Stock Exchange (FMG). Exiting the first quarter 2011, Leucadia owned roughly 248 million common shares of Fortescue, representing an 8% stake in the latter. Subsequent to the recent sell off, the company's stake in Fortescue will be 4.99%.
Leucadia is engaged in manufacturing, telecommunications, oil and gas drilling services, property management and services, gaming entertainment, real estate activities, medical product development operations and various other investment activities in the United States. The extensive diversification has not only helped the company flourish over the years but has also brightened its future growth prospects.
The company's results in the first quarter of 2011 were exceptionally weak as net earnings per share plummeted to 5 cents per share compared with 80 cents in the year-ago quarter and were below the Zacks Consensus Estimate of 45 cents. Higher taxes in the quarter are responsible for the decline.
Moreover, the company's investments in volatile materials, such as base metals reduce the value of its investments. Intense competition from various companies in different industries including Apollo Investment Corporation (AINV), The Blackstone Group (BX) and privately-held H Group Holding Inc. are sources of potential threat for Leucadia. Besides, lower pricing for the products and competition from new contenders might affect both top- and bottom-line results.
We currently maintain our Neutral recommendation on Leucadia.
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