* Cumming, Steinberg seek to emulate Buffett
* Company transitioned from insurance to industry
* Backed Jefferies after teetering in 2011
By Ben Berkowitz
NEW YORK, Nov 12 Lots of companies try to turn
themselves into mini-Berkshire Hathaway -style
conglomerates, but Leucadia National Corp has had more
success than most at pulling it off.
The diversified services company, which struck a deal on
Monday to acquire investment bank Jefferies Group Inc
for $3.6 billion, models itself in more than
cosmetic ways on Warren Buffett's empire.
There is the spare corporate website, which bears a striking
resemblance to Berkshire's similarly plain home page, plus the
annual letters from Chairman Ian Cumming and President Joseph
Steinberg, which read so much like Buffett's February missives
that any reader could be forgiven for confusing the two.
Leucadia, whose holdings range from real estate to mining,
even has a joint venture with Berkshire - a commercial mortgage
business called Berkadia that is one of the largest in the
country. No wonder, then, that the company, although not widely
known, is sometimes called "baby Berkshire."
"Overall, Berkadia has made excellent money for us, and Joe
and Ian have been terrific partners," Buffett wrote in his 2003
In their latest annual letter, Steinberg and Cumming noted
that Jefferies caused Leucadia huge losses in 2011, as the stock
plunged in the wake of MF Global's collapse. Leucadia already
owns about 29 percent of Jefferies.
They had nothing but the highest praise, though, for the way
the bank's management reacted - in textbook Buffett style, and
in keeping with their long-stated admiration for Jefferies boss
(and now Leucadia CEO) Richard Handler.
"We are proud of our ownership and association with
Jefferies and believe their response was their nest hour.
Jefferies enjoys a great deal of good will in its middle market
and we are grateful to its clients and customers who stood by
them," Cumming and Steinberg wrote.
FRIENDS AND PARTNERS
New York-based Leucadia operates in beef processing, wood
and plastics manufacturing, casino gaming, real estate, medical
product development - even wine, among its many other interests.
(In fact, the U.S. Securities and Exchange Commission still
categorizes it as a lumber and wood products company).
In 1978, fellow Harvard graduates Cumming and Steinberg took
over a struggling financial services company known as Talcott
National Corp and ultimately changed its name to Leucadia. They
remain the largest shareholders, together holding more than 18
percent of the stock.
(In their 2007 annual report, the pair confessed the name
was simply picked off a California road sign, as they liked the
sound of it and thought it had a good chance of not already
being taken in New York).
They immediately pursued a strategy familiar to anyone who
knows anything about the "Oracle of Omaha": Buy attractive
assets cheaply and run them better than the last guy.
Leucadia's fifth-largest shareholder, Horizon Kinetics LLC,
placed the company's success squarely on the two men's shoulders
in a quarterly report last month.
"We believe Leucadia is a well diversified, well
capitalized, profitable company with the same management in
place that created this history," Horizon managers wrote, noting
that as a bonus, the stock traded for less than book value.
"A low valuation is one of the better predictive attributes
and is particularly compelling when combined, as in the case of
Leucadia National, with proven owner-operators."
A 2005 Kiplinger's profile of the two headlined "Better
Than Buffett" - one of the rare articles to focus on the
publicity-shy managers - noted that from 1978 through 2004,
Leucadia's returns were actually 6 percentage points better than
Berkshire's Class A shares.
Since then, however, the tables have turned dramatically.
Berkshire is up more than 45 percent since the start of 2005,
while Leucadia is down just over 10 percent.
Over that period, Berkshire has been boosted by major
acquisitions like the Burlington Northern Santa Fe railroad and
the chemicals company Lubrizol, while Leucadia made difficult
forays into the telecommunications market and took substantial
lumps during the financial crisis.
Despite the divergent stock prices of late, the casual
observer could still be forgiven for comparing Cumming and
Steinberg to Buffett and his vice chairman, Charlie Munger -
savvy businessmen who figured out early that two heads can be
better than one. Like those men, they found much of their
fortune in insurance.
Through the 1990s, Leucadia was primarily a multiline
insurer offering both property and life coverage. The insurance
business was more than 80 percent of Leucadia's revenue, in
fact. Even then, though, it had tentacles in automotive lending
and the manufacturing of do-it-yourself home improvement
products, among other pursuits.
By 2000, it had added wine production, real estate and the
mining of precious metals to its stable. Before long, insurance
was gone and what was left was a Berkshire-esque conglomerate
that still had a large hand in high finance but also dabbled in
virtually any other sector with attractive but cheap assets.
In the last investor letter, the two men struck a cautious
tone, especially given the unsettled economy and the partisan
rancor in Washington over the national debt. But in true
Buffett-like fashion, they promised to keep growing anyway.
"We are enthusiastic about the future of our broad array of
operating businesses and investments and have our eyes open for
additional acquisitions. Never fear, if a good deal
comes along we will nd a way," they wrote.