The Inoculated Investor

2009 Leucadia (LUK) Annual Meeting

Disclaimer: These notes were taken in real time at the Leucadia Annual Meeting in New York, NY onMonday, May11th, 2009 without the use of a recorder. The goal was to get the gist of the questions and asmuch of the answer as possible. Please excuse any mistakes or omissions.

Speakers:

Chairman Ian Cumming, President Joe Steinberg, Director Jeff Keil, CFO Joseph Orlando (if the speaker is not listed then he/she was not identified)

1.Introductory remarks

a.Cumming:i.Aside from what is printed in the SEC filings and the annual report, thecompany has nothing to say and will open the floor up for questions

2.Q&A

Q1: If it is true that LUK’s competitive advantage is having Steinberg andCumming as leaders, how should investors think about where the next level of management comes from? Please talk about the succession plan.

i.Cumming:1.They have been working for 10 years on a succession plana.It is a topic of discussion at every board meeting b.They think they have a couple of people in mind who canassume at least a part of the management role2.Previously they had just focused on putting investments in placea.Believe they were not as cognizant as they should have beenon buying durable companies that would keep them cash flow positivei.For the next two years they will focus on buyingcompanies with durable underpinnings1.It is easier to run durable companies so thishas to be a strategy tied to their succession plan

Said he is 68 now and is signed through 2015a.Said he hopes to sign another long term contract thenii.Steinberg:

Their company has accomplished one important thing

If he and Cumming dropped dead one day the company hasmanagement below that would allow it to go on and be ingood shape2.Steinberg and Cumming do not fly together as mandated by the Board3.Replacing whatever investment acumen he and Cumming have is ahigh priority for thema.They are working on it but they don’t know exactly how theyare going to solve it yet b.Believes this is the most serious issue at LUK today

b.Q2: Can you talk about the Jeffries (JEF) compensation structure a little bit?

i.Cumming1.We don’t know exactly what people are getting paid therea.But, Steinberg and Cumming are both on the Board of JEFnowi.They are trying to stop JEF from seriously dilutingshareholders when they hire new peopleii.Have recently convinced the management team to goout into the market and buy stock if they use stock asa way to attract employees to JEF

The Inoculated Investor

http://inoculatedinvestor.blogspot.com/1.Now that this requires an actual expenditureand liquidity the company has started tothink more about compensationiii.Are concerned that over-energetic 28 years weremaking way more than they were worth and of courseare concerned about compensation

c.Q3: In terms of AmeriCredit (ACF), can you talk about why they liked the businessand what they see in the future of that business?

i.Cumming:1.They have made 4 large investments recently and they feel like they bought too soon on all of thema.However, all but ACF are in the money right now2.They previously had owned a subprime auto lender a.Were forced to sell it when the pricing got too low tocompensate them for the risk i.So they are knowledgeable and comfortable with the business3.Believe that there are going to be cars in this worlda.Aside from in NY where it is impossible to drive, most peoplehave to drive to work i.Poor people will need cars too4.Based on today’s margins, ACF would be doing incredibly wella.The problem is that there is no credit as the securitizationmarket has dried up

Said that they have been in the Fed’s offices multiples timestrying to figure out how to use TALF to get an economically prudent deal donei.The Fed has been trying to get liquidity and investors back into the securitization markets but ACF has hadno luck with TALF5.They are currently shrinking the business

Trying to get the capacity within the company’s net worthi.Even suggested the old fashioned idea of not lendingmore money than they had and not levering up at all1.Joked that the management team washorrified b.Will make money and grow as credit grows6.Have learned major lessons regarding this experiencea.Believe that 10-15 years from now banks will have forgottenabout these past troubles, want to get back into this businessand hopefully ACF could be sold to the banks before theydrive pricing down enough that ACF can’t be profitable andhas to be liquidated7.Claim that ACF has done $58B in securitizations and no one has lost a penny yetii.Steinberg:1.Going forward, there should also be less competition from non-banksa.ACF will not be as big as company as before b.However, Chrysler credit and GMAC are wounded and are notsupplying creditc.The car companies are basically out of the subprime spacenow2.ACF will finance itself in the future but will not be as highly levered3.The goal is to maintain the book value of the company, which is about$15 per share now

The Inoculated Investor

http://inoculatedinvestor.blogspot.com/a.This will allow them to wait and fight another day

d.Q4: In the past you had been hesitant to say that the stock was overvalued. Whatwould you say about it now?

i.Cumming:1.Will not comment directly on the stock price2.But he did say that he is very comfortable with their 4 big investmentsa.2 financial service companies and 2 minesi.Believe that when the market comes back theseinvestments will outperform

Q5: Can you talk about Fortescue Metals (FMG) and the dilution that could happenthere? Can you also talk about the Cresud investment in Argentina?

i.Steinberg:1.The newspaper reports on FMG are truea.They have the ambition to double their output

This will require a major investment and this meansthey will need to raise money in order to make thatinvestmenta.The Chinese will likely provide themoney

WSJ Article from 5/11/09:

HunanValin Iron & Steel Groupexecutives said China's sovereign-wealth fund may help financeexpansion atFortescue MetalsGroup Ltd. through debt rather thanstock purchases, as the Chinesesteel group became the Australianiron-ore miner's second-biggestshareholder. b.They have a lot of work to do to get what they already have upand running efficiently and without delaysc.It is a long term processii.Cumming:1.Believe the fundamentals are good for the companya.TV and the internet have shrunk the worldi.There are millions of people who watch TV and seethe wealth that exists in much of the rest of the world1.Are going to want to taste that wealththemselvesii.This should help this mine prosper as there will befurther demand for iron oreiii.Steinberg:1.Have a small investment in Cresud agricultural company in Argentinaa.Not really focusing on it right now b.Has a great portfolio of assets but the fundamentals right nowin Argentina are terriblei.Will hit the wall again soonii.Not very optimistic

f.Q6: Can you discuss the cash available for acquisitions and whether or not youwould be interested in looking for cheap assets tied to commercial real estate?

i.Cumming:1.Until the company has a big fat infrastructure that consists of durablecompanies they will certainly not speculate on commercial real estateassets