From Leucadia, a Final Letter to Shareholders

It would be a stretch to classify the letter to shareholders as a literary genre. But for some companies, like Berkshire Hathaway or the Leucadia National Corporation, these annual dispatches are eagerly consumed not only by shareholders but also by interested observers.

For Leucadia, this line of communication is coming to an end. The company, which is entering a new phase of its corporate life after its acquisition of the Jefferies Group, has written its final shareholder letter, a copy of which was obtained by DealBook. (Leucadia’s annual meeting was Tuesday.)

The letter, full of anecdotes and humor, is a valedictory from Ian M. Cumming and Joseph S. Steinberg, the founders of Leucadia who are stepping down from their management roles. Mr. Steinberg will be chairman of the combined company, while Richard B. Handler, the chief executive of Jefferies, is taking the helm of Leucadia.

Mr. Cumming will be “cheering - and kibitzing - from the sidelines” as he builds a new family compay, according to the letter.

Leucadia, which is sometimes compared to a “baby Berkshire Hathaway” because of the wide range of its holdings, echoes Warren E. Buffett’s company in the folksy tone of its final letter. The “unofficial history” contained therein is “mostly written for the benefit of grandchildren,” the letter says.

“A 35-year partnership is rare in marriage and even rarer in business,” the founders say in the letter. “Those unfamiliar with our approach have sometimes been startled by the occasional tenacity of our interactions.”

In the letter, the founders tell how they got their start at an investment bank with the “curious” name of Carl Marks & Company, and how they first met Mr. Handler when he was a “26-year-old baby in the business.” They also explain how Leucadia, which started as the Talcott National Corporation, got its name:

“One afternoon we were driving north on the San Diego Freeway and happened upon the town! of Leucadia, California. Why not? The name was available and we liked the sound of it. One of our mothers thought it resembled a blood disease. But it looked great on that interstate exit sign and has served us well.”

In addition to chronicling the highs and lows of their decades of deal-making, the founders offer their thoughts on the current market, seeming to yearn for the good old days:

“In recent years we have found it increasingly difficult to find good companies in which to invest. Competition is fierce for the mediocre and even fiercer for the good. Hedge funds and private equity have raised vast sums and those of you who have read our previous letters know well our rants on the subject. At our core we are value investors and finding value has become harder.”

The topics in the letter include the joys of tax planning:

“One of us enjoys the creative and legal process of tax planning and is very good at it, the other beaks out in a rash when trapped for long hours with tax accountants and lawyers, but is deeply appreciative of his partner’s patience.”

And it includes an encounter with Ivan F. Boesky, a central figure in a 1980s insider-trading scandal:

“We were more successful in 1988 taking control of another English company, Cambrian & General Securities, which had been managed by Ivan Boesky who was also a substantial shareholder. Mr. Boesky had legal difficulties and as a result forfeited his shares to the S.E.C. as part of a $100 million fine.”

The letter also illustrates the unusual businesses that a company like Leucadia can find itself in:

“During those years we also invested elsewhere outside the United States. In Russia, we purchased vouchers in their ‘garage sale’ of privatization auctions with some small success. We then became the bottler for Pepsi Cola for most of eastern Russia.”

Despite it! s decades! in business, Leucadia never gained the name recognition of Berkshire, which was a business partner over the years and lent a syllable to a holding that the partners renamed Berkadia. But that didn’t bother the founders.

“Leucadia usually flies below the radar and is often unconventional in its choice of investments,” the letter says. “We have always preferred to make money, rather than headlines.”