Leading funds, including Bill Ackman’s hedge fund Pershing Square Capital Management and $53.5 billion mutual fund company Davis Selected Advisers, filed forms 13-G with the SEC last week, indicating that they had amended their ownership in U.S. traded public companies. Form 13-D is commonly referred to as “beneficial ownership report,” and is required when a person or a group acquires beneficial ownership of more than 5% of the voting class of a company’s equity securities; form 13-G is the abbreviated version of the form that is allowed under certain circumstances.
The information in forms 13-D and 13-G is extremely timely, as it is required to be filed within ten days after the purchase, in contrast to 13-F quarterly filings by Institutions that are filed every three months. The information contained in 13-F filings, thereby, can as much as eighteen weeks old by the time it is disseminated to the public.
Furthermore, by virtue of their 5% ownership in public companies, the information contained in the 13-D and 13-G filings indicates only high-confidence or high-conviction moves by institutions and insiders, and hence can be interpreted to be of greater relevance to the investment community than the 13-F quarterly filings.
Additionally, 13-D and 13-G filings often are a precursor to hostile takeover, company breakups and other “change of control” events, and often they will include a letter to management explaining the reason for their taking a large stake in the company. The following are some of the major 13-D and 13-G filings by leading institutions and insiders during the week ending October 28 that can aid in identifying trading opportunities:
Sealed Air Corp. (SEE) manufactures packaging and related materials and systems for food, industrial, medical and consumer applications. On Thursday, October 20, Tuscon, Ariz.-based mutual fund company Davis Selected Advisers, with $53.5 billion in equity holdings, filed SEC Form SC 13D/A, indicating that it now holds 19.1 million or 9.9% of the outstanding shares of SEE.
Davis has been aggressively selling SEE since its June quarter SEC 13-F filing in which they reported holding 41.9 million shares, including 2.9 million shares sold in the past week, and 3.4 million in the week prior to that. There are no other major 5% institutional holders of SEE; Vanguard Group is the second-largest institutional holder of SEE, with 8.4 million or 4.4% of outstanding shares.
Cigna Corp. (CI): CI is a provider of managed healthcare services through HMO, PPO, POS and indemnity plans to 12.47 million members. Hedge fund Owl Creek Asset Management, headed by Jeffrey Altman and with $3.9 billion in stock holdings as of the latest available June quarter filing, filed SEC Form SC 13G, indicating that it now holds 13.9 million shares or 5.1% of the outstanding shares of CI. This is a significant increase from the 8.4 million shares or 3.1% of outstanding shares that Owl Creek owned at the time of their last 13-F filing for the June quarter.
The only other major 5% institutional holder of CI is Wellington Management Co, with 15.7 million shares or 5.8% of outstanding shares. Hedge fund Owl Creek also has a fairly concentrated portfolio with only 47 positions, with major stakes in two other companies, including holding 9.5% of the outstanding shares of truck manufacturer Navistar International Corp. (NAV) and holding 5.4% of the outstanding shares of auto parts manufacturer Dana Holding Corp. (DAN).
Canadian Pacific Railway (CP) provides rail and intermodal freight transportation services over a 15,400-mile network. It transports bulk commodities, including grain, coal, sulphur, and fertilizers; merchandise freight that consists of finished vehicles and automotive parts; forest products, such as wood pulp, paper, paperboard, newsprint, lumber, panel, and oriented strand board; and industrial and consumer products, which include chemicals, plastics, aggregates, steel, mine, ethanol, and other energy related products.
On Friday, Pershing Square Capital Management, managed by Bill Ackman and with $6.0 billion in assets under management, filed SEC Form SC 13D, indicating that it now holds 20.6 million shares or 12.2% of the outstanding shares of CP. This is a new position for Pershing Square since its last 13-F June quarter filing, and the shares were purchased in multiple transactions between September 23 and October 28. The only other major 5% institutional holder of CP is Royal Bank of Canada, with 10.2 million shares or 6% of outstanding shares.
Pershing Square has a deep value and shareholder activist orientation, with the $6.0 billion fund invested concentrated in only eleven investments as of the latest available June quarter filing. Besides CP, the fund holds major stakes in seven other companies, including holding 18.2% of the outstanding shares of department store chain JCPenney (JCP), 11.1% of the outstanding shares of alcoholic beverage manufacturer Beam Inc. (BEAM), 11.1% of the outstanding shares of home and security products supplier Fortune Brands Home & Security Inc. (FBHS), 9.5% of the outstanding shares of discount retail chain Family Dollar Stores (FDO), 9.4% of the outstanding shares of real estate developer Howard Hughes Corp. (HHC), 8.5% of the outstanding shares of containership freight shipper Alexander & Baldwin (ALEX), and 7.5% of the outstanding shares of retail REIT General Growth Properties (GGP).
MIPS Technologies Inc. (MIPS) is a provider of industry-standard processor architectures and cores that power various home entertainment, communications, networking, and portable multimedia products. On Tuesday, October 25, New York City-based hedge fund Starboard Value LP indicated that it now holds 5.2 million or 9.9% of the outstanding shares of MIPS. This is a new position for Starboard since their last 13-F filing for the June quarter. Starboard is a shareholder activist, and it uses a focused and differentiated fundamental approach to investing in deeply undervalued publicly traded U.S. small-cap companies. Already, it has filed a proxy statement, seeking representation on the board of directors of MIPS, indicating its displeasure with the current board in light of the company’s weak stock price performance, poor operating performance, and questionable acquisition strategy.
Starboard, like many other activist hedge funds, like in the case of Pershing Square above, maintains a concentrated portfolio -- in this case, only 14 positions. Besides MIPS, the fund holds major stakes in five other companies, including holding 11.9% of the outstanding shares of drug-delivery technology company Surmodics Inc. (SRDX), 9.9% of the outstanding shares of open standards mobile phone software and services provider Openwave System Inc. (OPWV), 9.9% of the outstanding shares of networking infrastructure equipment provider Extreme Networks Inc. (EXTR), 8.2% of the outstanding shares of digital video systems manufacturer Seachange International Inc. (SEAC), and 6.0% of the outstanding shares of wireless semiconductor chip designer DSP Group Inc. (DSPG).
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