Leucadia is a diverse conglomerate we started accumulating in September of 2014. Similar to DNOW and MSM, LUK has a strong balance sheet, conservative culture, and leadership that’s experienced in taking advantage of opportunities in a distressed market.

We’ve long followed LUK and admired the business acumen of Joe Steinberg and Ian Cummings, the legendary duo that founded LUK in 1978 and went on to produce one of history’s great track records. Watching the investing prowess of this duo produced a lot of head-scratching and immense value creation for shareholders.

In early 2013, as a solution to succession planning, Ian Cummings and Joe Steinberg merged LUK with Jefferies and turned over the reigns to Rich Handler and Brian Friedman, two executives with an impressive track record running Jefferies. LUK’s long history with Jefferies, as a customer and investor, gave us added confidence that the cultures of the two firms would sync up.

Today LUK is run by Rich Handler and Brian Friedman, with Joe Steinberg serving as chairman of the board. LUK’s eclectic group of subsidiaries touch numerous industries, from beef processing to investment banking, and while a few of LUK’s subsidiaries are firing on all cylinders, most are struggling, earning sub-par returns on capital amid challenging conditions. We believe the difficulties afflicting many of LUK’s subsidiaries will prove temporary, and earnings power will rise in the future. In the meantime, LUK’s opportunistic culture, strong balance sheet, and savvy stewardship offer a good prospect of value creation via opportunistic investments: the hallmark of LUK’s success.

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The above commentary has been excerpted from the annual letter of Arlington Value Capital.

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