Tracking Seth Klarman's Baupost Group Holdings - Q2 2017 Update

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Includes: ABC, AGN, AIG, AR, ATRA, BATRA, BATRK, BIIB, CACC, CAH, CAR, CASC, CDEV, CLNY, CPAA, DVMT, ESRX, FOX, FOXA, FWP, GE, GLIBA, GTYHU, IMOS, INVA, KERX, LNG, MCK, NG, OREX, PBF, PRTK, QCOM, QRTEA, QRVO, RUN, SRC, SYF, SYT, TBPH, TMQ, VRTV, VSAT
by: John Vincent

Summary

Seth Klarman’s U.S. long portfolio value increased from $8.49B to $8.75B this quarter.

Baupost Group increased Synchrony Financial, Qorvo, and Antero while dropping Innoviva.

The portfolio continues to be heavily concentrated with the top three positions accounting for almost one-third of the 13F 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 08/11/2017. 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 Q1 2017.

Baupost Group’s U.S. long portfolio value increased ~3% from $8.49B to $8.75B this quarter. The total number of 13F securities decreased from 41 to 38. The portfolio is heavily concentrated with Cheniere Energy (NYSEMKT:LNG), Synchrony Financial (NYSE:SYF), ViaSat, Inc. (NASDAQ:VSAT), Twenty-First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA), and Colony NorthStar (CLNS), together accounting for ~48% of the 13F holdings.

Since inception (1982), Baupost Group’s U.S. long portfolio has accounted for between 2.4% and 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

Avis Budget Group (NASDAQ:CAR) and Spirit Realty Capital (NYSE:SRC): These are the two new positions this quarter. CAR is a 1.25% of the portfolio stake purchased at prices between $21.50 and $32 and the stock is now above that range at $34.79. The 0.76% SRC position was established at prices between $6.71 and $10.50 and the stock currently goes for $8.26.

Stake Disposals

Liberty Ventures (LVNTA): The 0.78% Liberty Ventures position was disposed of this quarter at prices between $44.50 and $56. The stake was purchased in Q2 2016 at prices between $34.70 and $40.34. There was a ~40% selling in Q4 2016 at prices between $36.50 and $41. The stock is now at $60.58.

Note: LVNTA is a tracking stock that represents economic interest in businesses of Liberty Interactive (QVCA).

McKesson Corp. (NYSE:MCK): MCK was a 1.75% portfolio stake established in Q4 2016 at prices between $124 and $167 and sold out this quarter at prices between $135 and $168. The stock is now at $150.

Innoviva, Inc. (NASDAQ:INVA) previously Theravance (NASDAQ:TBPH): INVA was a 1.88% of the U.S. long portfolio stake as of last quarter. It was a very long-term position that had been in the portfolio since 2008. Q2 and Q3 2016 saw a combined ~30% selling at prices between $9.91 and $13.76. Last quarter saw another ~23% selling at prices between $10.40 and $13.80. The elimination this quarter was at prices between $11.25 and $14.50. The stock currently trades at $12.47. The disposal of a long-term stake indicates a clear bearish bias.

Note: In April, Innoviva narrowly won an especially ugly proxy contest with Sarissa Capital. It had sought to replace three board seats. Excessive executive compensation was at the root of the proxy fight.

AmerisourceBergen (NYSE:ABC) and Syngenta AG (NYSE:SYT): These two very small (less than ~0.5% of the portfolio each) stakes were sold this quarter.

Stake Increases

Synchrony Financial: SYF, the November 2015 spin-off from General Electric (NYSE:GE), is a large (top three) ~10% stake established in Q3 2016 at prices between $25 and $28.50. Q4 2016 saw a ~18% increase at prices between $26 and $37. There was a ~15% selling last quarter at prices between $32.50 and $38. This quarter saw a two-thirds increase at prices between $26.50 and $34.50. The stock currently trades at $29.20. For investors attempting to follow Klarman, SYF is a good option to consider for further research.

Qorvo, Inc. (NASDAQ:QRVO): QRVO is a fairly large ~5.8% portfolio stake established last quarter at prices between $53 and $69 and increased by ~25% this quarter at prices between $63 and $79. The stock is now at $68.90.

Note: Baupost controls 7.1% of the business.

Antero Resources Corporation (NYSE:AR): AR is a fairly large 5.23% of the U.S. long portfolio position established in Q3 2014 at prices between $54.50 and $66. The stake was increased by ~185% the following quarter at prices between $38.50 and $55.50. Q1 2015 saw a further ~20% increase at prices between $34 and $42.50. The pattern reversed in Q2 2015: ~14% reduction at prices between $34 and $46. Q3 2015 saw a stake doubling at prices between $20 and $34.50 and that was followed with a ~20% increase the following quarter at prices between $19 and $26. Q2 2016 saw a one-third reduction at prices between $24.50 and $30. There was another about-turn this quarter: ~45% increase at prices between $19.50 and $22.50. The stock currently trades at $18.49.

Note: Klarman controls 6.7% of the business.

Express Scripts (NASDAQ:ESRX): ESRX is a 1.86% of the portfolio position established last quarter at prices between $64 and $73 and doubled this quarter at prices between $59 and $67. The stock is now at $60.82.

Cardinal Health (NYSE:CAH): The 1.81% CAH position was purchased in Q4 2016 at prices between $65 and $78 and almost doubled this quarter at prices between $71.50 and $83. The stock currently goes for $66.98.

Forward Pharma (NASDAQ:FWP): FWP is a 1.48% of the U.S. long portfolio stake established in Q4 2014 at around $22. The stock currently trades at $24.40. There was a ~4% increase last quarter and that was followed with a 14% increase this quarter. For investors attempting to follow Baupost, FWP is a good option to consider for further research.

Note 1: The stock price doubled in January following settlement of a lawsuit with Biogen (NASDAQ:BIIB) that netted $1.25B.

Note 2: Klarman controls ~14% of the business.

Paratek Pharmaceuticals (NASDAQ:PRTK) and Silver Run Acquisition (SRUN): These are very small (less than ~1% of the portfolio each) stakes increased this quarter. PRTK saw a ~17% increase while SRUN stake was increased by one-third.

Note 2: Baupost Group controls 8.6% of PRTK.

Stake Decreases

Cheniere Energy: LNG is Klarman’s largest 13F position at 11.53% of the U.S. long portfolio. The original stake was established in Q1 2014 at prices between $41 and $55. In H2 2014, it was doubled at prices between $62 and $84. Q2 2015 saw a further ~11% increase at prices between $68.50 and $80 and that was followed with another ~50% increase the following quarter at prices between $47.50 and $71. Q4 2015 and Q1 2016 also saw a combined ~32% increase at prices between $24 and $54. There was a ~22% selling in Q4 2016 at prices between $35.50 and $43.50. The stock currently trades at $42.59. There was a ~5% trimming this quarter.

Note: Baupost controls ~8.7% of Cheniere Energy.

Liberty Braves (NASDAQ:BATRA) (NASDAQ:BATRK), Credit Acceptance Corp. (NASDAQ:CACC), and American International Group (NYSE:AIG) WTS: These are very small (less than ~0.5% of the portfolio each) stakes that saw reductions this quarter.

Kept Steady

ViaSat: VSAT is Klarman’s third-largest U.S. long position at ~10% of the portfolio. The stake has only seen minor increases since Q3 2012. 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 $60.54. Q4 2016 saw a ~14% increase at prices between $66 and $81. He is sitting on huge gains on the position.

Note: Klarman controls 23.5% of VSAT.

Twenty-First Century Fox: FOX is a large (top five), ~8.5% 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. Q3 2016 saw another one-third increase at prices between $24 and $29 and that was followed with a similar increase in Q4 2016 at prices between $24.50 and $28.50. The stock currently trades at $27.84.

Colony NorthStar: The top-five stake in Colony NorthStar came about as a result of the three-way merger of Colony Capital (NYSE:CLNY), NorthStar Asset Management Group (NSAM), and NorthStar Realty Finance (NRF) that closed in January. Baupost held stakes in all three of these stocks and those got converted into CLNS shares. It controls 8.7% of CLNS and its overall cost-basis is ~$12.50 per share. CLNS currently trades at $13.65. For investors attempting to follow Baupost, CLNS is a good option to consider for further research.

Note: The merger terms called for conversion to CLNS in the ratio 1:1.0996:1.4663 (NSAM:CLNY:NRF).

Allergan plc (NYSE:AGN): AGN is a large 6.76% of the U.S. long portfolio stake established in Q1 2016 at prices between $266 and $299. Q2 2016 saw a ~16% increase at prices between $202 and $278. There was another ~70% increase in Q4 2016 at prices between $189 and $243. The pattern reversed last quarter: almost 30% sold at prices between $210 and $250. The stock currently trades at $233.

Theravance Biopharma: TBPH is a 4.22% of the U.S. 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 $14.50 and $22. Q2 2016 saw another ~13% increase at prices between $17.50 and $24. The stock is now at $24.10. Q4 2016 also saw a ~25% increase at prices between $24.50 and $38.50.

Note: Klarman controls ~19% of the business.

PBF Energy (NYSE:PBF): PBF is a fairly large ~4% of the U.S. 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. Q3 2016 saw another ~50% increase at prices between $21 and $24. The stock currently trades at $21.16.

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

Dell Technologies (NYSE:DVMT): DVMT, the VMware (NYSE:VMW) tracking stock, is a fairly large ~4% portfolio position. It started trading in September 2016 following the close of Dell’s deal for EMC. Baupost had a huge stake in EMC for which it received $24.05 cash and 0.111 shares of DVMT for each share held. There was a ~15% reduction last quarter at prices between $54.50 and $65.

Note: DVMT currently trades at $63.04, a wide discount to VMW which is trading at $91.95.

Qualcomm, Inc. (NASDAQ:QCOM): QCOM is a 3.29% of the portfolio position purchased last quarter at prices between $52.50 and $67 and the stock is currently at $52.72.

Keryx Biopharma (NASDAQ:KERX): KERX is a 2.13% of the U.S. 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 $6.42. 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 it also owns.

Veritiv Corporation (NYSE:VRTV): VRTV is a 1.57% of the U.S. long portfolio position established in Q3 2014 at prices between $32.50 and $50.50. Q2 2015 saw a ~9% increase at prices between $35.50 and $45 and that was followed with a ~13% increase the following quarter at prices between $33 and $42.50. The stock currently trades at $28.80.

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

Atara Biotherapeutics (NASDAQ:ATRA): ATRA is a 0.86% of the U.S. 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 $14.75.

Note: Klarman controls ~19% of the business.

ChipMOS (NASDAQ:IMOS): IMOS is a small 0.79% of the U.S. 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 $17.99.

Note: Baupost controls ~8% of IMOS.

Cascadian Therapeutics (NYSE:CASC): The minutely small 0.37% stake in CASC was doubled last quarter at prices between $3.50 and $5.10. The stock is currently at $3.64.

Note: Baupost owns ~18% of CASC.

GTY Technology (NASDAQ:GTYHU), Conyers Park Acquisition (NASDAQ:CPAA) & Warrants, NovaGold Resources Inc. (NYSEMKT:NG), Centennial Resource Development (NASDAQ:CDEV), Saban Capital Acquisition Corp. (NASDAQ:SCAC), Sunrun Inc. (NASDAQ:RUN), Trilogy Metals (NYSEMKT:TMQ), and Orexigen Therapeutics (NASDAQ:OREX): These are very small (less than ~0.5% of the portfolio each) stakes kept steady this quarter.

Note 1: Baupost controls ~9% each of CPAA and SCAC and ~8% of GTYHU. They are “blank check” companies.

Note 2: Baupost Group controls ~10% of TMQ.

Note 3: Orexigen split 1-for-10 in July 2016. 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 4: The 13F also list small positions in Theravance Notes & Theravance Biopharma Notes. The Theravance Notes stake has seen a ~64% reduction in the last two quarters.

The spreadsheet below highlights changes to Klarman's U.S. stock holdings in Q2 2017:

Baupost Group's Q2 2017 13F

Disclosure: I am/we are long AIG, AR, INVA, KERX, LNG, NG, OREX, PBF, PRTK, QCOM, 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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