Julian Robertson's Tiger Cub Protégés Think SuperValu Is A Super Value

| About: SUPERVALU Inc. (SVU)
This article is now exclusive for PRO subscribers.

Although we have been disappointed in Supervalu's (NYSE:SVU) performance since we re-entered it in Q2 2012, we can see that we are not the only firm that has taken a position in the company during the 2012 calendar year. With regard to SVU's top 20 institutional shareholders as reported by Morningstar, we can see that three of SVU's top 20 institutional shareholders are subsidiaries of investment banking firms, another three are investment management boutique firms, and seven are hedge fund and other alternative asset firms.

We previously published an article on SVU's debt holders and we were ecstatic that the well-known, well-respected active fixed-income manager Daniel Fuss of Loomis Sayles has over $400 million of SVU's outstanding debt in his top-performing multisector bond portfolio products. What caught our eye was that nearly 83% of the face value of Loomis Sayles's SVU debt holding was SVU's long-dated New Albertsons, Inc. unsecured debt. In this article, we will be focusing on SVU's equity holders.

Source: Loomis Sayles Mutual Fund Portfolio Holdings.

The entity that owned the largest block of SVU common stock is the Fidelity Low-Priced Stock Fund. Fidelity Low-Priced Stock has earned a silver, four-star rating by Morningstar and it has 10 million shares of SVU as of July 31, 2012. Fidelity Low-Priced Stock has 4.68% of SVU's outstanding stock; however it sold off 2.6 million shares vs. its prior fiscal quarter reporting period.

As this represented a small holding in the Fidelity Low-Priced Stock Fund, it remains to be seen if the fund had sold off its SVU shares in the period since July 31. State Street Global Advisors (8.5%) and Vanguard (5.4%) are the largest institutional shareholders, but both firms are primarily focused on index products such as passive ETFs and index mutual funds.

Source:Morningstar Direct.

LSV Asset Management is the active manager that owns the largest equity stake in SVU. LSV Asset Management is a quantitative value equity manager providing active management for institutional investors through the application of proprietary investment models. LSV manages nearly $59 billion in AUMs as of Sept. 30, 2012, and SEI Investments (NASDAQ:SEIC) owns nearly 40% of LSV's outstanding stock. LSV owns 10.5 million (4.86%) shares of SVU as of Sept. 30 and it only sold 36,000 shares of SVU in the July-September 2012 quarterly period, even though SVU's share price showed significant regression in the wake of its soft sales and profit results during the period. Other well-respected traditional asset management boutiques that rank among SVU's top 20 institutional holders include Hotchkis & Wiley Capital Management (5.8 million shares, 2.72%) and Brandes Investment Partners (3.6 million shares, 1.7%).

Source: Morningstar Direct.

SVU's Top 20 institutional shareholders include the investment management divisions of three well-known investment banking/universal banking institutions. The largest stake amongst these three shareholders is held by Evercore Trust Company, N.A. Evercore Trust is a subsidiary of Evercore Partners, Inc. and it owns 7.15 million shares (3.34%) in SVU. Evercore Trust actually increased its stake in SVU by 2 million shares in the most recent quarterly period, even though SVU missed its Q1 2013 and Q2 2013 EPS estimates.

BNP Paribas Arbitrage SA owns 5.05 million shares (2.36%) of SVU and it joined Evercore in adding to its stake during the most recent quarter. BNP Paribas Arbitrage added nearly 2.9 million shares of SVU in its most recent quarter, which resulted in its stake in SVU more than doubling during the period. The last investment amongst SVU's top 20 holders is Investec Bank's Investec Asset Management subsidiary. Investment Asset Management has 4.2 million shares (1.95%) and added 908,000 shares in its most recent quarter.

Source: Morningstar Direct.

SVU's low price and soft performance has attracted the attention of a number of hedge fund and alternative asset firms, seven of which are counted among SVU's top 20 shareholders. The largest shareholder of these firms is Maverick Capital, with 8.8 million shares (4.1%) of SVU. Maverick added 8.04 million shares in its most recent quarter and is now the fourth largest institutional holder overall. Maverick was founded by Lee Ainslie and Evan, Sam, and Charles Wyly. Before starting Maverick Capital, Ainslie was a managing director at Julian Robertson's Tiger Management Corporation.

Another Tiger Cub that has a notable stake in SVU is Philippe Laffont's Coatue Management LLC. Coatue was founded in 1999 by Laffont and it manages $6 bilion in assets as per its most recent 13-F, and initiated a 4.7 million share (2.2%) position in SVU in its most recent quarter. Owl Creek is an event-driven shop founded by Franklin Mutual alumnus Jeff Altman and it initiated a 4.07 million share (1.9%) position in the quarter ended Sept. 30. Bluemountain is a distressed credit shop that initiated a 4 million share (1.87%) position in SVU in its most recent quarter.

Other hedge funds and alternative asset managers with 4 million or more shares of SVU include the following firms:

  1. Private Management Group (4.24 million shares, 1.98% of SVU's shares and 1.06 million added in Q3 2012)
  2. Goldentree Asset Management LP (4.175 million shares, 1.95% of SVU's shares and 1.64 million added in Q3 2012)
  3. Brigade Capital Management LLC (4 million shares, 1.87% of SVU's shares and 1.25 million added in Q3 2012)

Source: Morningstar Direct.

In conclusion, we are pleased to see that leading institutional equity managers have a large commitment to SVU. We believe that although SVU is facing a challenging set of circumstances, investors in SVU's bonds or shares will find it to be a "super value." We were particularly pleased to see that two Tiger Cubs have staked out a significant position in SVU. We believe that Fuss' $338 million investment in SVU's longest dated New Albertsons bonds shows investors that not only should they expect a return of their SVU investment, they should also expect a return on their SVU investment. We believe that the combination of Fuss' SVU debt holdings and hedge fund equity holdings show investors that there is still value to be unlocked and salvaged with SVU, especially in light of deal speculation involving Cerberus, KKR, and TPG Capital.

Disclosure: I am long SVU. 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.

Disclaimer: This article was written by an analyst at Saibus Research. Saibus Research has not received compensation directly or indirectly for expressing the recommendation in this article. We have no business relationship with any company whose stock is mentioned in this article. Under no circumstances must this report be considered an offer to buy, sell, subscribe for or trade securities or other instruments.