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from Outstanding Investor Digest's August 8, 1997 edition


SOGEN FUNDS'
JEAN-MARIE EVEILLARD ET AL.
(continued from preceding page)


    Eveillard: They haven't always sold for that kind of discount historically. For example, in 1987, in what was admittedly a very strong market for equities, (at least for a portion of the year), these holding companies were selling at discounts of only 5% or 10%.

OID: So at least in an extremely overvalued market, these holding companies haven't sold at big discounts.
     Eveillard: You laugh. But that's right. And, in fact, that's often what happens. If you look at closed-end funds, they often sell at a premium when the country itself is hot and a discount when the country is cold.
    And that's bizarre. It should be the other way around.

OID: Based on logic, but not the wiring of our brains.
     Eveillard: Exactly. You're buying a depressed asset at a discount - which is not very logical to expect - just as it's not very logical to expect an overvalued asset to sell at a premium. But logical or not, that's how it usually works.


A SUCCESSION OF HOLDING COMPANIES
CAN CREATE A DISCOUNT TO A DISCOUNT.

    Eveillard: Similarly, sometimes there is a succession of these holding companies. In other words, one owns a stake in another which owns a stake in a third, etc. And, often, the closer you get to the top holding company, the larger the discount.

OID: Because you get a discount to a discount.
     Eveillard: Exactly. So Immobiliere Marseillaise has a stake in EuraFrance - which is also a holding company And EuraFrance, itself, has a stake in Gaz et Eaux.

OID: And for the sake of fitting this feature into the available pages, I hope that Gaz et Eaux is not a holding company, too.
     Eveillard: Gaz et Eaux is a holding company. And, actually, I didn't mention Rue Imperiale de Lyon - the top holding company - because the market for it is very thin.
    Of the four, EuraFrance trades most easily. But Immobiliere Marseillaise sells at a bigger discount. So, although it also trades more thinly than EuraFrance, other things being equal, I'd rather go with it.
    Incidentally, we value those sub-holding companies using their adjusted net asset value - not their stock price.

OID: Sounds reasonable.
     Eveillard: I think so. And, therefore, the discount is often narrowest for the holding companies at the bottom of the chain and biggest for the ones at the top. And that's so for Gaz et Eaux, EuraFrance and Immobiliere Marseillaise.
    Therefore, starting at the bottom of the chain, let's first look at Gaz et Eaux. Its assets break down roughly as follows: 26% cash, 25% Pearson (the British media company), 12% Sidel (a manufacturer of machinery that produce PET bottles [biodegradable plastic bottles]), 19% Danone (the big food company), and the remaining 15% in unlisted companies including a stake in Lazard Partners.

OID: And the estimated discount?
     Eveillard: Because Gaz et Eaux is, in effect, the first

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