The company 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. Leucadia has largely benefited from its extensive diversification into a variety of businesses, which is expected to continue in the long term.
Over the years, Leucadia has grown through acquisition and divestment. In 2009, it acquired a 50% equity interest in Keen Services for $15 million and 25% of the outstanding common shares of AmeriCredit Corp. (ACF) for $418.6 million. In February 2010, the company sold 30 million common shares of Fortescue for $121.5 million, which will result in a net securities gain of $94.9 million in the first quarter of 2010. The company continuously evaluates its portfolio of businesses and looks for profitable new acquisitions.
Although acquisitions and divestments add value to the company, they also increase debt and interest payments. As of December 2009, the company already had a debt of $198.6 million, up from $151.1 million at the end of 2008. An increase in debt in the future is likely to raise liquidity concerns.
Leucadia has substantial investments in Fortescue, an entity engaged in the mining of base metals (principally iron ore and copper). The prices of base metals are volatile in nature, which can impact the value of the company’s investments. In addition, mining operations are often subject to delay and regulatory scrutiny, which can increase costs as well as lead to uneven or delayed production.
Pricing changes and mining delays have a direct impact on the value of the company’s investments and could adversely impact results of operations and equity.
Pricing on STi Prepaid’s prepaid phone card business is highly sensitive to price declines and is subject to intense competition. Use of voice over Internet protocol has further increased competition and reduced prices. The impact of lower pricing and new competitors have had − and may continue to have − an adverse impact on both top and bottom line results.
Economic conditions have shown some improvements, which are likely to benefit Leucadia in the coming quarters.
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