Tracking Seth Klarman's Baupost Group Holdings - Q3 2016 Update

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Includes: AGN, AIG, AR, ATRA, BATRA, BATRK, BEAV, C, CACC, CAR, CASC, CLNY, DVMT, FOX, FOXA, FWP, GE, IMOS, INVA, KERX, KIN, KLXI, LNG, LVNTA, NG, NRF, NSAM, ODP, OLN, OREX, OZM, PBF, PRTK, PYPL, QVCA, RUN, SEMI, SRAQ, SUNEQ, SYF, TBPH, TBRA, TMQ, VMW, VRTV, VSAT
by: John Vincent

Summary

Seth Klarman’s US long portfolio decreased from $7.37B to $7.04B this quarter.

Baupost Group added Synchrony Financial and increased PBF Energy & Twenty-First Century Fox during the quarter.

The portfolio continues to be heavily concentrated with the top three positions accounting for ~37% of the entire US long portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Baupost Group's U.S. stock portfolio on a quarterly basis. It is based on Klarman's regulatory 13F Form filed on 11/14/2016. Please visit our Tracking Seth Klarman's Baupost Group Holdings article for an idea on how his holdings have progressed over the years and our previous update for the fund's moves during Q2 2016.

Baupost Group's US long portfolio decreased 4.49% from $7.37B to $7.04B this quarter. The total number of 13F securities held increased from 39 to 41. The portfolio is heavily concentrated with Cheniere Energy (NYSEMKT:LNG), ViaSat Inc. (NASDAQ:VSAT), Synchrony Financial (NYSE:SYF), Twenty-First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA), and Allergan plc (NYSE:AGN) together accounting for 50% of the 13F holdings.

Since inception (1982), Baupost Group's US long portfolio has accounted for between 2.4% to 15% of the Assets Under Management (AUM). The current allocation is at the high end of that range. The rest of the AUM is diversified among cash, debt, real estate, and hedges. The fund continues to hold well over a quarter of the AUM in cash. Seth Klarman's distinct investment style is elaborated in his 1991 book "Margin of Safety: Risk-averse value investing strategies for the thoughtful investor." The book is out-of-print and copies sell for a huge premium.

New Stakes:

Synchrony Financial: SYF, the November 2015 spinoff from General Electric (NYSE:GE) is a large (top five) ~7% stake established this quarter at prices between $25.12 and $28.40. The stock currently trades well above that range at $33.34.

Dell Technologies (NYSE:DVMT): DVMT, the VMware (NYSE:VMW) tracking stock is a fairly large 4.52% portfolio position. It started trading on September 8th following the close of Dell's deal for EMC. Baupost had a huge stake in EMC for which they received $24.05 per share cash and 0.111 per share in VMware tracking stock.

Note: DVMT currently trades at $50.08, a wide discount to VMW which is trading at $78.25.

Colony Capital Inc. (NYSE:CLNY), Northstar Asset Management Group (NYSE:NSAM), and Northstar Realty Finance Corp. (NYSE:NRF): These are small (less than ~2% of the portfolio each) new stakes established this quarter. Combined, the stake is at 4% of the portfolio.

Note: These three businesses are merging in an all-stock deal. There is activist (Abrams Capital, MSD Capital, and Land & Buildings) pressure from NSAM holders to restructure the deal.

Conyers Park Acquisition (CPAA) & Warrants, Office Depot (NYSE:ODP), Saban Capital Acquisition Corp. (SCAC), and Tobira Therapeutics (NASDAQ:TBRA): These are minutely small (less than ~0.5% of the portfolio each) stakes established this quarter. CPAA and SCAC are "blank check" companies that started trading in September.

Note: Allergan plc acquired Tobira Therapeutics in a transaction that closed on November 1st. The deal was announced in September and the terms called for Tobira shareholders to receive $28.35 per share cash and a Contingent Value Right (CVR) that could pay out up to $49.84 per share. Klarman's stake may be an asymmetric risk-reward bet on the CVRs.

Stake Disposals:

Citigroup Inc. (NYSE:C): C was a medium-sized ~3% portfolio stake established last quarter at prices between $38.48 and $47.33 and disposed of this quarter at prices between $40.78 and $47.90. The stock is now at $55.45.

EMC Corporation: EMC was the largest 13F stake at 21.01% of the portfolio as of last quarter. It was established in Q4 2015 at prices between $24.16 and $28.35 and increased by ~77% in Q1 2016 at prices between $23.90 and $26.71. Last quarter also saw a ~10% further increase. On October 12, 2015, Dell announced a deal to acquire EMC for $24.05 per share cash and 0.111 per share in VMware tracking stock. The transaction closed in September thus eliminating the position.

SunEdison Semiconductor (NASDAQ:SEMI): SEMI was 0.67% of the US long portfolio position established in Q2 2014 at prices between $14.37 and $17.76 and increased by ~90% in Q1 2015 at prices between $15.19 and $27.14. The disposal this quarter was at prices between $5.17 and $11.58. Baupost realized losses.

Note: SEMI was spun-off from SunEdison Inc. (OTCPK:SUNEQ) on May 22, 2014. Klarman had a ~20% ownership interest in the business. In August, GlobalWafers agreed to acquire SEMI for $12 per share cash.

Avis Budget (NASDAQ:CAR) and Och-Ziff Capital Management (NYSE:OZM): These are very small (less than ~1% of the portfolio each) stakes purchased last quarter but eliminated this quarter.

Stake Increases:

PBF Energy (NYSE:PBF): PBF is a ~5% of the US long portfolio position first purchased in Q3 2013 at prices between $21 and $26. It was more than doubled the following quarter at prices between $21.50 and $31.50 and was increased by over 175% in Q1 2014 at prices between $24 and $31.50. The stake had since been doubled through periodic buying. This quarter saw another ~50% increase at prices between $21.04 and $24.06. The stock currently trades at $26.44.

Note: Klarman's ownership interest in PBF is ~15%.

Twenty-First Century Fox: FOX is a large (top five) 6.95% of the portfolio stake established in Q3 2015 at prices between $25.41 and $33.52 and increased by ~41% in Q1 2016 at prices between $24 and $28. This quarter saw another one-third increase at prices between $24.12 and $28.62. The stock currently trades at $27.40. For investors attempting to follow Baupost, FOX is a good option to consider for further research.

American International Group (NYSE:AIG) WTS: This is a very small 0.78% position that was increased by ~20% last quarter. This quarter also saw a marginal increase.

Stake Decreases:

Cheniere Energy: LNG is Klarman's largest 13F position at 17.25% of the US long portfolio. The original stake was established in Q1 2014 at prices between $41 and $55. In Q3 2014, it was increased by ~87% at prices between $70 and $84 and that was followed by another 23% increase the following quarter at prices between $62 and $80. Q2 2015 saw a further ~11% increase at prices between $68.49 and $80 and that was followed with another 48% increase the following quarter at prices between $47.47 and $70.65.

Q4 2015 & Q1 2016 also saw a combined ~32% increase at prices between $24 and $54. The stock currently trades at $37.80. For investors attempting to follow Baupost, LNG is a good option to consider for further research. There was a ~7% trimming this quarter.

Innoviva Inc. (NASDAQ:INVA) previously Theravance: INVA is a 2.33% of the US long portfolio stake. It is a very long-term position that has been in the portfolio since 2008. Last quarter saw a ~11% trimming at prices between $9.91 and $13.76 and that was followed with another ~15% reduction this quarter at prices between $10.53 and $13.04. The stock currently trades at $11.13.

Note: Baupost controls ~14% of the business.

Kindred Biosciences (NASDAQ:KIN): KIN is a very small 0.21% of the US long portfolio position. The stake as a percentage of the business is very significant at over 15%. It was established in Q4 2013 at a cost-basis of around $11. The stock is now at $4.45. This quarter saw marginal trimming.

Olin Corporation (NYSE:OLN): The 1.80% of the portfolio stake in OLN was established in Q3 2015 at prices between $17 and $26. Q1 2016 saw a ~50% increase at prices between $12.78 and $17.59. There was an about turn this quarter: ~42% reduction at prices between $18.27 and $26.28. The stock is now at $25.01.

Note: The ownership stake in Olin Corporation is ~3.7%.

PayPal Holdings (NASDAQ:PYPL): The 2.91% PYPL position was established in Q3 2015 as a result of the spinoff of PayPal from eBay (NASDAQ:EBAY) that closed in July 2015. Klarman had 9.3M shares of eBay and received the same number of PayPal shares. He also increased the stake by ~17% immediately after the transaction. PYPL started trading at $36.71 and currently trades at $38.94. Q1 2016 saw a ~37% reduction at prices between $31.20 and $41.32 and that was followed with another ~20% reduction last quarter at prices between $34.20 and $40.31. The pattern continued this quarter with a ~12% further selling at prices between $35.93 and $41.06.

VMware Inc.: VMW is a 1.67% of the portfolio stake purchased in Q1 2016 at prices between $43.84 and $57.02. This quarter saw a ~30% reduction at prices between $56.59 and $75.23. The stock is now at $78.25.

Silver Run Acquisition (NASDAQ:SRAQ) & WTS: The very small 0.91% portfolio position was increased by one-third through the purchase of warrants last quarter. This quarter saw a marginal reduction.

Kept Steady:

Allergan plc: AGN is a large top-five 6.55% of the US long portfolio stake established in Q1 2016 at prices between $266 and $299. Last quarter saw a ~16% increase at prices between $202 and $278. The stock currently trades below those ranges at $196. For investors attempting to follow Baupost, AGN is a good option to consider for further research.

Antero Resources Corporation (NYSE:AR): AR is a fairly large 5.56% of the US long portfolio position established in Q3 2014 at prices between $54.50 and $65.71. The stake was increased by ~185% the following quarter at prices between $38.60 and $55.51. Q1 2015 saw a further ~19% increase at prices between $34.02 and $42.35. The pattern reversed in Q2 2015: ~14% reduction at prices between $34 and $46. Q3 2015 saw a stake doubling at prices between $20.20 and $34.34 and that was followed with a ~19% increase the following quarter at prices between $19 and $26. Last quarter saw a one-third reduction at prices between $24.73 and $30.10. The stock currently trades at $25.23. Klarman controls ~4.7% of the business.

Atara Biotherapeutics (NASDAQ:ATRA): ATRA is 1.63% of the US long portfolio stake established in Q4 2014 at around $19 per share. In Q1 2015, the stake was increased by ~90% at prices between $18 and $42.90. The stock currently trades at $19.30.

Note: Klarman controls ~19% of the business.

ChipMOS (NASDAQ:IMOS): IMOS is a small 1.06% of the US long portfolio position established in Q2 2013 at prices between $12.30 and $20. The stake was increased by ~19% the following quarter at prices between $15 and $21. The last significant activity was in Q3 2015: ~14% increase at prices between $15.39 and $22. The stock currently trades at $15.40. Klarman controls 13.75% of ChipMOS.

Note: Per a regulatory 13G/A filing on November 9th, the position was eliminated.

Citigroup WTS (C.WS.A): The warrants have a strike price of $106.10 and expire on 01/04/2019. They currently trade at $6 (for ten warrants which can be converted to one Citigroup common stock, Yahoo Ticker C-WTA). The bulk of the 0.08% position was established at prices between $4.50 and $5.80. It is a leveraged bullish bet on Citigroup.

Forward Pharma (NASDAQ:FWP): FWP is a small 1.60% of the US long portfolio stake established in Q4 2014 at around $22. The stock currently trades at $19.29.

Note: Klarman controls ~12% of the business.

Keryx Biopharma (NASDAQ:KERX): KERX is 1.95% of the US long portfolio position established in Q1 2014 at prices between $12 and $17. In Q2 2014, the position was increased by two-thirds at prices between $12 and $17 and the following quarter, the pattern continued with a ~74% stake increase at prices between $12.50 and $18. H1 2015 had also seen a ~40% further increase at prices between $9.50 and $14.50. The stock currently trades well below the low-end of those ranges at $6.41. His cost-basis is at around $12.

Note: The latest regulatory 13D filing shows Baupost beneficially owning 59.2M shares (42.53% of the business). This is compared to 25.79M shares in the 13F. The difference is due to $125M in 2020 convertible ($3.74) notes that they also own.

KLX Inc. (NASDAQ:KLXI): KLXI is a small ~1 % of the US long portfolio position established in Q1 2015 at prices between $37 and $41.50. Q4 2015 saw a one-third increase at prices between $30 and $41. The stock currently trades near the low-end of those ranges at $38.77.

Note: KLXI is a spinoff from B/E Aerospace (NASDAQ:BEAV) and it started trading in December 2014.

Liberty Ventures (NASDAQ:LVNTA) and Liberty Braves (NASDAQ:BATRA) (NASDAQ:BATRK): These are tracking stocks that represent economic interests in businesses of Liberty Interactive (NASDAQ:QVCA). The 1.24% Liberty Ventures position was purchased at prices between $34.70 and $40.34 and the stock is now at $39.20. The 0.74% Liberty Braves stake was established at prices between $14.27 and $19.95 and the stock is now at $18.95.

Trilogy Metals (NYSEMKT:TMQ) previously Novacopper (NCQ): This is a minute stake at 0.08% of the US long portfolio. Q2 2015 saw a ~76% increase at prices between $0.50 and $0.66 and the stock is now at $0.52.

Note: Klarman's ownership stake in TMQ is ~10%.

NovaGold Resources Inc. (NYSEMKT:NG): NG is a 0.76% stake built up over several quarters in 2012 at prices between $3.5 and $12. Q4 2015 saw a ~13% reduction at prices between $3.27 and $4.47 and that was followed with a ~21% reduction in the following quarter at prices between $3.54 and $5.42. There was another ~37% selling last quarter at prices between $5.05 and $6.51. The stock currently trades at $4.57.

Paratek Pharmaceuticals (NASDAQ:PRTK): PRTK is a small 0.38% of the US long portfolio stake established as a result of a cash-infusion prior to the reverse-stock-split, merger, and name-change transaction of Paratek (privately held at the time) with Transcept Pharma (Nasdaq listed at the time) in November 2014. Q2 2015 had seen a ~11% reduction at prices between $24.33 and $32.49. Last quarter saw a one-third increase at prices between $12.68 and $16.98. The stock currently trades at $13.10.

Note: Baupost Group controls ~9% of the business.

Theravance Biopharma (NASDAQ:TBPH): TBPH is 3.79% of the US long portfolio position established in Q2 2014 as a result of the spinoff of TBPH from Theravance (now Innoviva). The spinoff terms called for Theravance shareholders to receive 1 share of TBPH for every 3.5 shares of Theravance held. The original stake was increased by ~5% in Q1 2015 at prices between $14.70 and $21.73. Last quarter saw another ~13% increase at prices between $17.45 and $24.20. The stock is now at $35.73.

Note: Klarman controls ~15.5% of the business.

Veritiv Corporation (NYSE:VRTV): VRTV is 2.17% of the US long portfolio position established in Q3 2014 at prices between $32.50 and $50.22. Q2 2015 saw a ~9% increase at prices between $35.50 and $45.16 and that was followed with a ~13% increase the following quarter at prices between $33.06 and $42.60. The stock currently trades at $53.10.

Note: Klarman's ownership interest in VRTV is at ~19%.

ViaSat: VSAT is Klarman's third-largest US long position at 12.24% of the portfolio. Since Q3 2012, the stake has seen only minor increases. Klarman first purchased VSAT in 2008 at much lower prices and his overall cost basis is in the high teens. The stock currently trades at $80.79. He is sitting on huge gains on the position.

Credit Acceptance Corp. (NASDAQ:CACC), Cascadian Therapeutics (NYSE:CASC), Orexigen Therapeutics (NASDAQ:OREX), and Sunrun Inc. (NASDAQ:RUN): These are very small (less than ~1% of the portfolio each) stakes kept steady this quarter.

Note 1: Baupost owns 18.49% of CASC.

Note 2: Orexigen split 1-for-10 in July and that accounts for the large reduction in the share count. Baupost was involved in a couple of capital raise transactions. Including the implied dilutions, the beneficial ownership in Orexigen is at over one-third of the business.

Note 3: The 13F also lists a small position in Theravance Notes.

The spreadsheet below highlights changes to Klarman's US stock holdings in Q3 2016:

Click to enlarge

Disclosure: I am/we are long AIG, INVA, KERX, LNG, NG, OREX, PYPL, TBPH.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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