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SOGEN FUNDS'
JEAN-MARIE EVEILLARD ET AL.
(continued from preceding
page)
OID: Famous last words. Wasn't that what they said when they started the U.S. income tax?
Tobin: Exactly. And the same thing happened in Germany when they imposed a "temporary" tax to help pay for reunification. But we understand that the new tax law shouldn't impact the after-tax value by more than about 1% for these companies.
More troublesome is that the French government is also talking about increasing the tax rate on corporate income by about 15%.
OID: And you said Rue Imperiale de Lyon is at the top of the holding company chain?
Eveillard: Yes. But we estimate its current stock price of FF5,650 represents a discount of about 50% from its adjusted NAV.
OID: Less than Immobiliere Marselleise's discount.
Eveillard: That's right. So the top holding company is not always cheapest. And, again, it's very thinly traded.
OID: You say that the real estate market in France has been depressed for a long time. But what can you tell us about the valuations of their other assets? I believe Peter Cundill told us about one whose holdings sounded a bit pricy. Does packaging come to mind?
Eveillard: That was probably Marine-Wendel and CGIP. The top holding is Marine-Wendel and the sub-holding is CGIP - which owns a stake in Crown, Cork & Seal among others.
And the P/E on Crown, Cork & Seal looks high. But it just went though a merger. And I think some of the cost savings have already shown up, but not all. So it may look expensive on the basis of their 1996 earnings, but it may be much less high on the basis of '97 or '98.
OID: That's what Peter Cundill said.
Eveillard: Going up the holding chain, we estimate that the discounts on CGIP and Marine-Wendel are about 44% and 48%, respectively. Incidentally, those two are controlled by the Wendel family - who, we believe, has also done an excellent job of overseeing their portfolios, building value and so forth.
And, so, we think a 50% discount to adjusted NAV on a well managed portfolio of fairly valued securities is still attractive. It's even better, of course, if it's a 50% discount to a portfolio of undervalued securities. But as long as they aren't overvalued...
OID: Which I gather they aren't in the case of the ones you've told us about?
Eveillard: I believe the insurance company stocks that EuraFrance owns are fairly valued. We're talking about stocks that have gone up with the markets in Europe. And Pearson has gone up with the market in England. So neither the insurance stocks nor Pearson strike us as overvalued or undervalued. The only one that might be undervalued is Danone - the French food company.
But at a discount of 50-60% or more...
Page 8 of 20
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