Tracking Seth Klarman's Baupost Group Holdings - Q3 2017 Update

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

Summary

Seth Klarman’s US long portfolio value decreased from $8.75B to $8.02B this quarter.

Baupost Group added McKesson and AMC Entertainment, while increasing Allergan and dropping Qualcomm.

The portfolio continues to be heavily concentrated, with the top three positions accounting for one-third of the 13F portfolio.

This article is part of a series that provide 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 11/13/2017. 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 Q2 2017.

Baupost Group’s US long portfolio value decreased 8.34%, from $8.75B to $8.02B this quarter. The total number of 13F securities decreased from 38 to 37. The portfolio is heavily concentrated, with Cheniere Energy (NYSEMKT:LNG), Synchrony Financial (NYSE:SYF), ViaSat Inc. (NASDAQ:VSAT), Twenty-First Century Fox (FOX, FOXA), and Qorvo (NASDAQ:QRVO) together accounting for ~50% of the 13F holdings.

Since inception (1982), Baupost Group’s US long portfolio has accounted for between 2.4% and 15% of the fund's 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

McKesson Corp. (NYSE:MCK): MCK is a small 0.96% portfolio stake established this quarter at prices between $146 and $168, and the stock is currently below that range at $138. For investors attempting to follow Baupost, MCK is a good option to consider for further research.

Note: MCK is back in the portfolio after a quarter’s gap. It was a 1.75% portfolio stake established in Q4 2016 at prices between $124 and $167, and sold out last quarter at prices between $135 and $168. The stock is now at $150.

AMC Entertainment (NYSE:AMC): AMC is a very small 0.65% of the portfolio position purchased this quarter at prices between $12.50 and $23.20, and the stock is now at $11.65.

Note: Baupost has a ~6.7% ownership stake in the business.

AmerisourceBergen (NYSE:ABC), Pioneer Natural Resources (NYSE:PXD), and Simply Good Foods (NASDAQ:SMPL) WTS: These are minutely small (less than 0.25% of the portfolio each) stakes established this quarter.

Note: AmerisourceBergen is back in the portfolio after a quarter’s gap. The Simply Good Foods WTS stake came about as a result of Conyers Park Acquisition and Atkins Nutritionals combining to form the new entity, Simply Good Foods. Baupost had a small stake in the former, a “blank check” company.

Stake Disposals

Qualcomm Inc. (NASDAQ:QCOM): QCOM was a 3.29% of the portfolio position purchased in Q1 2017 at prices between $52.50 and $67 and disposed this quarter at prices between $49.50 and $57. The stock is currently at $66.49.

Note: Last week, Broadcom (NASDAQ:AVGO) offered to buy Qualcomm for $70 per share ($60 cash). Yesterday, Qualcomm rejected the proposal saying it is too low.

Spirit Realty Capital (NYSE:SRC): The 0.76% SRC position was established last quarter at prices between $6.71 and $10.50 and sold this quarter at prices between $7.30 and $8.75. The stock currently goes for $8.62.

Conyers Park Acquisition (NASDAQ:CPAA) & Warrants, Liberty Braves (BATRA, 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 were disposed this quarter.

Note 1: The 13F also showed a small position in Theravance (NASDAQ:TBPH) Notes last quarter. It was dropped during the quarter.

Note 2: Baupost controlled ~9% of Conyers Park Acquisition. The latter combined with Atkins Nutritionals to form Simply Good Foods.

Stake Increases

Twenty-First Century Fox: FOX is a large (top-five) 8.67% 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 $27.82. There was a marginal increase this quarter.

Allergan plc (NYSE:AGN): AGN is a large 7.57% of the US 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 in Q1 2017: almost 30% sold at prices between $210 and $250. The stock currently trades at $174. This quarter saw a ~22% stake increase at prices between $202 and $256.

Antero Resources Corporation (NYSE:AR): AR is a fairly large 5.93% of the US 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: a ~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 last quarter: a ~45% increase at prices between $19.50 and $22.50, and that was followed with a ~13% increase this quarter. The stock currently trades at $19.89.

Note: Klarman controls 7.6% of the business.

Theravance Biopharma: TBPH is a ~4% of the US long portfolio position established in Q2 2014 as a result of the spin-off of TBPH from Theravance (now Innoviva). The spin-off 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 $28.28. Q4 2016 also saw a ~25% increase at prices between $24.50 and $38.50. This quarter saw a marginal further increase.

Note: Klarman controls ~19% of the business.

Cardinal Health (NYSE:CAH): The 2.11% CAH position was purchased in Q4 2016 at prices between $65 and $78 and almost doubled last quarter at prices between $71.50 and $83. There was another ~25% increase this quarter at prices between $64 and $79. The stock currently trades below those ranges at $58.33. For investors attempting to follow Baupost, CAH is a good option to consider for further research.

Veritiv Corporation (NYSE:VRTV): VRTV is a 1.24% of the US 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 $23.90. There was a marginal increase this quarter.

Note: Klarman’s ownership interest in VRTV is ~19.5%.

Forward Pharma (NASDAQ:FWP): FWP is a very small ~0.50% of the US long portfolio stake established in Q4 2014 at around $22. Baupost recouped their entire investment this quarter, as the company issued a special dividend of $23.12 per share. The stock currently trades at $4.63.

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.

Stake Decreases

Dell Technologies (NYSE:DVMT): DVMT, the VMWare (NYSE:VMW) tracking stock, is a ~3% 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 they received $24.05 cash and 0.111 shares of DVMT for each share held. There was a ~15% reduction in Q1 2017 at prices between $54.50 and $65, and that was followed with another ~45% selling this quarter at prices between $86 and $111.

Note: DVMT currently trades at $81.81, a wide discount to VMW, which is trading at $123.

ChipMOS (NASDAQ:IMOS): IMOS is a small 0.73 % of the US long portfolio position established in Q2 2013 at prices between $12.30 and $20. The stake was increased by ~20% the following quarter at prices between $15 and $21. The last significant activity was in Q3 2015: a ~14% increase at prices between $15.39 and $22. The stock currently trades at $17.70. There was a ~13% trimming this quarter at prices between $16.50 and $20.50.

Avis Budget Group (NASDAQ:CAR) and Silver Run Acquisition (SRUN): These two positions were reduced by ~75% each this quarter. Now, they are minutely small (less than 0.5% of the portfolio each) stakes.

Kept Steady

Cheniere Energy: LNG is Klarman’s largest 13F position at 11.64% of the US 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 one-third 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 $49.28.

Note: Baupost controls ~8.7% of Cheniere Energy.

Synchrony Financial: SYF, the November 2015 spin-off from General Electric (NYSE:GE), is a large (top-three) 11.34% stake established in Q3 2016 at prices between $25 and $28.50. Q4 2016 saw an ~18% increase at prices between $26 and $37. There was a ~15% selling in Q1 2017 at prices between $32.50 and $38. Last quarter saw a two-thirds increase at prices between $26.50 and $34.50. The stock currently trades at $32.59.

ViaSat: VSAT is Klarman’s third-largest US long position at 10.55% 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 $70. 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.

Qorvo Inc.: QRVO is a large ~8% portfolio stake established in Q1 2017 at prices between $53 and $69 and increased by ~25% last quarter at prices between $63 and $79. The stock is now at $79.08.

Note: Baupost controls 7.1% of the business.

Colony Northstar (CLNS): The large 7.5% 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. They control 8.7% of CLNS, and their overall cost basis is ~$12.50 per share. CLNS currently trades at $12.60. 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).

PBF Energy (NYSE:PBF): PBF is a fairly large 5.41% 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. Q3 2016 saw another ~50% increase at prices between $21 and $24. The stock currently trades at $30.77.

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

Keryx Biopharma (NASDAQ:KERX): KERX is a 2.28% of the US long portfolio position established in Q1 2014 at prices between $12 and $17. Q2 and Q3 2014 saw the position more than doubled 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 $4.90. Klarman’s cost basis is 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.

Express Scripts (NASDAQ:ESRX): ESRX is a ~2% of the portfolio position established in Q1 2017 at prices between $64 and $73 and doubled last quarter at prices between $59 and $67. The stock is now at $60.88.

Atara Biotherapeutics (NASDAQ:ATRA): ATRA is a 1.11% 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 $13.55.

Note: Klarman controls ~19% of the business.

Cascadian Therapeutics (NYSE:CASC) and Paratek Pharmaceuticals (NASDAQ:PRTK): The 0.44% stake in CASC was doubled in Q1 2017 at prices between $3.50 and $5.10. The stock is currently at $3.98. PRTK is a 0.75% position that saw a ~17% increase last quarter at prices between $18.50 and $25.50. The stock is now at $21.65.

Note: Baupost Group controls 8.6% of PRTK and ~18% of CASC.

GTY Technology Holdings (NASDAQ:GTYHU), 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% 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 lists a small position in Theravance Biopharma Notes.

The spreadsheet below highlights changes to Klarman's US stock holdings in Q3 2017:

Seth Klarman - Baupost Group - Q3 2017 13F Report

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