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VALUEVEST MANAGEMENT'S
MARK BAKAR AND JOHN BURBANK
(continued from preceding
page)
Bakar: And I was encouraged by something else.
Apparently, Korea will allow bank employees to be fired. That's a watershed event, I think, for a couple of reasons:
First, it may encourage foreign banks to come in and buy some of Korea's bankrupt banks. And, second, it may represent the bare beginnings of Korea opening up and reforming both its financial system and labor laws.
Korea is totally bust. But they want to do everything they can to avoid defaulting and. therefore, being viewed the way that Latin America's been viewed since the '70s.
OlD: And paying far higher interest rates, as a result.
Bakar: Exactly. So the Samsungs of Korea are telling the government not to saddle them with that baggage.
OlD: And, hopefully, taxpayers will chime in, too.
Bakar: Absolutely. So perhaps Korea is beginning to understand where the U.S. is coming from and what they're doing and that they're not trying to steal their country. If so, Korea could be close to the bottom.
Still, I'm not putting 20% of my portfolio in Korea today. Again, I expect to see companies going bankrupt every day. And it's hard to imagine that not weighing on their currency and their stock market.
OlD: It certainly doesn't sound cheery.
Bakar: But Shinsegae is extremely cheap. And it's probably one helluva buy. That's really the bottom line. And if you do buy it, you'll probably have made an enormous amount of money over the next five years.
But also be prepared to lose 30% in a day.
Burbank:If you were able to own 100% of Shinsegae - even if you could buy 51% and the Korean authorities didn't stop you - you could sell off the retailing group, Samsung Electronics and the land, and just hold onto the life insurance piece. And by holding onto it, you'd also avoid a huge capital gains tax.
And I suspect that you might be pretty happy about owning 15% of the largest life insurer in Korea for free.
OlD: Or even less - since the value of its other assets may be a multiple of its net debt.
Burbank: Exactly. Again, the level of undervaluation here is staggering - absolutely staggering.
BUT HAS MUCH FASTER GROWTH & HIGHER RETURNS.
Burbank: Samsung Fire and Marine is similar to Shinsegae in some ways and different in others. It's similar in that it's another insurance company selling at a very substantial discount to intrinsic value.
But unlike Shinsegae, you're not buying a bundle of unrelated assets that you can sell off and, thereby, own the insurance company for free. It's a relatively pure play.
Page 13 of 14
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