As the saying goes, it’s better to be lucky than good. This past year luck was not on our side as measured by our share price. However, at Loews we believe that we have to make our own luck and find a path to do “good” for our shareholders, even when conditions are far from optimal.
Our way of making the best of a bad situation in 2015 was through share repurchases. In total, we spent approximately $1.3 billion buying back 33 million shares of Loews stock. That’s about 9% of Loews’s outstanding shares, which represents the most shares we have repurchased in a single year since 1993.
These share buybacks were aimed squarely at achieving our number one goal — creating value for Loews shareholders over the long term. That is the central imperative that drives our company and our decision-making process.
While share repurchase is only one of our value creation levers, it was the most effective option available in 2015, as the turmoil in the energy space continued to impact Diamond Offshore and Boardwalk Pipeline Partners. The precipitous decline in the offshore drilling market buffeted Diamond and its share price. Meanwhile, transformative change in the U.S. natural gas market has led Boardwalk to invest in an equally transformative strategy, yet the performance of its stock was restrained.
Capital concerns for other midstream MLPs negatively affected valuations, and the industry as a whole continues to be impacted by ongoing re-contracting issues. Additionally, while CNA is already benefiting from its strategy to improve underwriting margins, its share price has not correlated with its performance.
As a result of all these factors, the stock prices of our subsidiaries reflected short term conditions and not the companies’ solid balance sheets, staying power, and future opportunities. Loews’s share price reflected these declines and traded throughout the year at a deep discount to what we believe is its intrinsic value. By purchasing Loews shares in 2015, we have taken advantage of that double discount to amplify our value creation.
In addition to share repurchases, we employ two other levers to create value for our shareholders: adding another business at the holding company level and investing in our subsidiaries. We’re actively seeking to diversify our portfolio of businesses, but so far, valuations for companies and assets have not lent themselves to attractive returns on invested capital. While we are continually kicking tires, acquisitions at the holding company level are rare. We’re looking for the right deal at the right price — either a company with good cash-on-cash returns and strong secular growth trends, or undervalued assets at an attractive entry point in the cycle.
Using holding company liquidity to help our subsidiaries grow is another important lever Loews deploys in order to create value. Since 2010, we have invested more than $1.5 billion of holding company cash to help facilitate transactions and capital projects at Boardwalk and Loews Hotels &Resorts, the subsidiaries for which we have traditionally provided funding. All told, our subsidiaries and their partners have invested or committed almost $10 billion to capital projects and acquisitions over the past five years. As always, all of these capital allocation decisions were made with an eye towards future growth potential and value creation.
At Loews we believe it is our job to focus on finding the way forward within this period of transformative change, and to turn headwinds into opportunities to create value for the long term.
2015 Annual Report