Odyssey Re: The Truth Shall Set You Free

In my last post I highlighted the reasons why I own Odyssey Re, and also some of the risks in the investment.

Of the 5 risks I highlighted, one was relating to a dispute about some tax transactions in the past wrt to the Fairfax Financial parent company:

"Lawsuits: Fairfax made some transactions in Odyssey stock several years back to be able to consolidate ORH onto its balance sheet for tax purposes. I personally believe that when Fairfax management says that the IRS had approved of this transaction, then the discussion is over. But company critics and a few short sellers certainly have a different view. This may be a grey cloud that hangs over the company for a while until it blows over and is resolved."

An announcement tonight by Fairfax has put the issue to rest (finally). Unsurprisingly, Fairfax and Odyssey management did not break any rules, and adhered to the tax code. The IRS has completed the review of those tax years and has closed the books.

"No changes were made to the above-mentioned consolidated 2003 and 2004 tax returns with respect to that purchase of shares and issuance of exchangeable debentures or the inclusion of Odyssey Re..."

The fact that only days ago Fairfax critics were putting out harassing and misleading PR announcements stating that Fairfax and Odyssey should come clean about the tax issue is just that much funnier.

Since my post in May, Odyssey shares have appreciated slightly while the market has tanked. I believe this announcement only further clears the air about ORH and FFH as solid investment candidates with great management.

Fairfax fought the good fight on this issue. When it was first raised they said that the issue was reviewed by the tax authorities and was signed off. They then were silent as their many critics bantered about the issue ad nauseum. While some may have preferred Fairfax and Odyssey be more vocal in their defense, to me the critics were so out of line with so little actual facts behind their argument that I'm glad they were never ackknowledged and given legitimacy.

Fairfax and Odyssey are now at a point in their businesses where they can let the results speak for themselves... and that is just what they are doing.

Ben

Long ORH and FFH