Tracking Seth Klarman's Baupost Group Holdings - Q4 2018 Update

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Includes: AABA, ABC, AGN, AKBA, AMC, AR, ATRA, CAH, CBS, CLNY, DIS, EBAY, FOX, FOXA, GE, GTYH, KERX, LBTYK, LNG, MCK, NG, NXST, PCG, PRTK, PXD, QRVO, SBGI, SCAC, STNL, SYF, TBIO, TBPH, TMQ, TRCO, UNVR, VRTV, VSAT, YPF
by: John Vincent
Summary

Seth Klarman’s 13F portfolio value decreased from $13.06B to $11.52B this quarter.

Baupost Group added eBay while increasing Liberty Global and Univar during the quarter.

The portfolio continues to be heavily concentrated with the top three positions accounting for ~43% of the 13F portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Baupost Group's 13F stock portfolio on a quarterly basis. It is based on Klarman's regulatory 13F Form filed on 02/13/2019. 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 Q3 2018.

Baupost Group's 13F portfolio value decreased ~12% from $13.06B to $11.52B this quarter. The total number of 13F securities remained steady at 35. The portfolio is heavily concentrated with Twenty First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA), Cheniere Energy (NYSEMKT:LNG), Viasat Inc. (NASDAQ:VSAT), Liberty Global (NASDAQ:LBTYA) (NASDAQ:LBTYK), and Qorvo (NASDAQ:QRVO) together accounting for ~55% of the 13F holdings.

Since inception (1982), Baupost Group's 13F 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

eBay Inc. (EBAY): EBAY is a fairly large ~5% of the portfolio stake established this quarter at prices between $26 and $33 and the stock currently trades well above that range at $36.26.

Note: eBay has had a previous roundtrip in the portfolio. A ~4% portfolio stake was disposed in Q4 2015.

Akebia Therapeutics (AKBA), CBS Corp (CBS), and Nexstar Media Group (NXST): The 1.17% AKBA stake came about as a result of the all-stock merger with Keryx Pharmaceuticals. Baupost had effective ownership of 65.37M shares (includes 39.6M shares of convertible notes it agreed to redeem at a conversion price of $4.17) for which it received 24.47M shares of AKBA (0.37433:1 ratio). Overall its cost-basis is around $19, much higher than the current price of $6.45. CBS is a ~1% position purchased at prices between $42 and $58.50, and it now goes for $48.43. The very small 0.65% NXST position was established at prices between $71 and $88, and it is now at $86.88.

Note: Baupost controls ~21% of Akebia Therapeutics.

Stake Disposals

Altaba Inc. (AABA): The small 1.47% AABA position purchased last quarter at prices between $63.75 and $77.50 was disposed this quarter at prices between $55.50 and $67. The stock currently trades at $69.07.

Keryx Biopharma (KERX): KERX was a 0.67% of the portfolio position established in Q1 2014 at prices between $12 and $17. Q2 and Q3 2014 saw the position more than double at prices between $12.50 and $18. H1 2015 had also seen a ~40% further increase at prices between $9.50 and $14.50. Its overall cost-basis was ~$12 per share. Keryx merged with Akebia in an all-stock deal and the transaction closed last quarter, thereby eliminating this position.

NovaGold Resources Inc. (NG): The very small 0.38% long-term stake in NG saw a ~13% increase in Q4 2017 at prices between $3.40 and $4.25 and another ~25% increase in Q1 2018 at prices between $3.60 and $4.70.The disposal this quarter was at prices between $3.65 and $4.30. The stock is currently at $3.64.

Tribune Media (TRCO): The 1.77% TRCO position was purchased in Q2 2018 at prices between $35 and $41 and doubled last quarter at prices between $32 and $39. The disposal this quarter was at prices between $37 and $45.50.

Note: In December, Nexstar agreed to acquire TRCO in a $46.50 per share cash deal.

Stake Increases

Liberty Global (LBTYK) (LBTYA) and Univar Inc. (UNVR): These two positions established last quarter saw large increases this quarter. LBTYK is a top-five 6.25% portfolio stake established at prices between $25 and $28.50 and increased by ~120% this quarter at prices between $19.50 and $27.50. The stock currently trades at $23.77. UNVR is a 1.46% stake established at prices between $25.50 and $31 and increased by ~440% this quarter at prices between $16.25 and $31. The stock is now at $23.15. For investors attempting to follow Baupost, these two are good options to consider for further research.

Note: Baupost controls 6.71% of Univar.

Pioneer Natural Resources (PXD): PXD was a minutely small stake established in Q3 2017. The position was built up to a 3.42% portfolio stake in Q4 2017 at prices between $142 and $174. There was a stake doubling in Q2 2018 at prices between $165 and $189 and that was followed with a ~13% increase this quarter. The stock is now near the low end of those ranges at ~$146. The stake is at 5.14% of the portfolio.

Antero Resources Corporation (AR): AR is a 2.33% of the 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. Recent activity follows: the three quarters through Q1 2018 had seen a combined ~25% stake increase at prices between $17 and $22. This quarter also saw a ~8% increase. The stock current trades well below those ranges at $9.07.

Note: Klarman controls ~9% of the business.

Nexeo Solutions WTS (NASDAQ:NXEO) and Shire plc (NASDAQ:SHPG): These very small positions (less than 1% of the portfolio each) were increased during the quarter.

Note: Takeda Pharmaceutical (OTCPK:TKPHF) acquired Shire plc in a transaction that closed last month. Regulatory filings since the quarter ended show it owning 5.28% of Nexeo Solutions.

Stake Decreases

Twenty First Century Fox (FOX) (FOXA): FOX is currently the largest position at ~29% of the portfolio. It was established in Q3 2015 at prices between $25.41 and $33.52 and increased by ~40% in Q1 2016 at prices between $24 and $28. H2 2016 also saw a two-thirds increase at prices between $24 and $29. Last four quarters had seen a ~160% stake increase at prices between $24.30 and $50. The stock currently trades at $49.65. This quarter saw minor trimming.

Note: In December 2017, Walt Disney (DIS) agreed to acquire certain assets (excludes Broadcasting network and stations, Fox News, Fox Business, FS1, FS2 and Big Ten Network) from Twenty First Century Fox in an all-stock deal (0.2745 shares of DIS per FOX share).

Qorvo Inc. (QRVO): QRVO is a large 5.63% portfolio stake established in Q1 2017 at prices between $53 and $69 and increased by ~25% the following quarter at prices between $63 and $79. There was another ~22% stake increase in Q4 2017 at prices between $65 and $81. The stock is now at $64.90. This quarter saw a ~3% trimming.

Note: Baupost controls ~9.4% of the business.

Allergan plc (AGN): AGN is a large 5.52% of the 13F portfolio stake established in Q1 2016 at prices between $266 and $299. There was a ~70% stake 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. Q3 2017 saw a ~22% stake increase at prices between $202 and $256 and that was followed with a ~50% increase the following quarter at prices between $164 and $211. There was a ~4% increase last quarter and a similar trimming this quarter. The stock currently trades well below those ranges at ~$140.

PG&E Corporation (PCG): PCG is ~3% stake established in Q1 2018 at prices between $38 and $45 and increased by ~43% next quarter at prices between $39 and $47. Last quarter saw a stake doubling at prices between $41.50 and $47. The stock currently trades well below its purchase price ranges at $15.21. PG&E filed for bankruptcy last month.

Note: It was reported that in November Baupost bought insurance claims worth $1B for ~$350M. The claims against PG&E, connected to the Nov 2017 wildfires, were held by CSAA Insurance Group. That stake can act as a hedge against the long position reported in the 13F filing.

Synchrony Financial (SYF): SYF, the November 2015 split-off from General Electric (GE), is at ~3% of the portfolio. It was established in Q3 2016 at prices between $25 and $28.50. Q2 2017 saw a two-thirds increase at prices between $26.50 and $34.50. Last quarter saw an about turn: ~44% reduction at prices between $29 and $35 and that was followed with a ~11% trimming this quarter. The stock currently trades at $30.77.

McKesson Corp. (MCK): MCK is a 1.65% portfolio stake established in Q3 2017 at prices between $146 and $168 and increased by ~170% in the following quarter at prices between $135 and $163. The stock currently trades at ~$134. There was a ~20% stake increase in Q1 2018 at prices between $139 and $177 and that was followed with another one-third increase last quarter at prices between $123 and $139. This quarter saw a ~20% selling at prices between $108 and $137.

Note: MCK had a previous round-trip. It was a 1.75% portfolio stake established in Q4 2016 at prices between $124 and $167 and sold out in Q2 2017 at prices between $135 and $168.

AmerisourceBergen (ABC): ABC was a minutely small position established in Q3 2017. It was built to a 1.30% portfolio stake next quarter at prices between $73 and $94. The stock is now at $86.41. Last two quarters had seen a stake doubling at prices between $79 and $95 while this quarter saw a ~25% selling at prices between $71 and $94.

Cardinal Health (CAH): CAH position is now very small at 0.57% of the portfolio. It was purchased in Q4 2016 at prices between $65 and $78 and almost doubled in Q2 2017 at prices between $71.50 and $83. There was another ~25% increase the following quarter at prices between $64 and $79 and that was followed with a stake doubling in Q4 2017 at prices between $55 and $68. There was a ~7% trimming last quarter and that was followed with a ~70% reduction this quarter at prices between $43 and $57.50. The stock currently trades at $55.05.

AMC Entertainment (AMC): AMC is a very small 0.16% of the portfolio position purchased in Q3 2017 at prices between $12.50 and $23.20 and increased by ~40% in Q1 2018 at prices between $11 and $16. The stake was sold down by ~70% over the last two quarters at prices between $12 and $21. The stock is now at $13.51.

GTY Technology (GTYH) and Saban Capital Acquisition Corp. (SCAC): These very small (less than ~0.5% of the portfolio each) stakes were reduced this quarter. In September last year, Saban Capital agreed to acquire Panavision and Sim.

Note: Baupost controlled ~9% of Saban Capital Acquisition and ~8% of GTY Technology as of last quarter. Regulatory filings since the quarter ended show them no longer holding shares in these businesses.

Kept Steady

Cheniere Energy (LNG): LNG is Klarman's second-largest 13F position at ~7.3% of the 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. The three quarters through Q1 2016 saw another stake doubling at prices between $24 and $71. Q4 2016 saw a reversal: 22% sold at prices between $35.50 and $43.50 and that was followed with a roughly one-third reduction in Q2 2018 at prices between $53 and $69. The stock currently trades at $65.85.

Note: Baupost controls ~5.5% of Cheniere Energy.

Viasat (VSAT): VSAT is a large (top three) position at ~7% 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 ~$74.63. 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% of VSAT.

Tesla Notes: The 3.16% position in Tesla Notes had seen a 20% increase last quarter but was kept steady this quarter.

Theravance Biopharma (TBPH): TBPH is a ~2% of the portfolio position established in Q2 2014 as a result of the spinoff of TBPH from Theravance (now Innoviva (NASDAQ:INVA)). The spinoff terms called for Theravance shareholders to receive 1 share of TBPH for every 3.5 shares of Theravance held. The last major activity was a ~25% increase in Q4 2016 at prices between $24.50 and $38.50. The stock is now at $27.20.

Note: Klarman controls ~19% of the business.

Colony Capital (CLNY): The ~2% stake in Colony Capital came about as a result of the three-way merger of Colony Capital, Northstar Asset Management Group (NSAM), and Northstar Realty Finance (NRF) that closed in January 2017. Baupost held stakes in all three of these stocks and those got converted into CLNY shares. It controls ~10% of CLNY and its overall cost-basis is ~$12.50 per share. CLNY currently trades well below that at $6.07. For investors attempting to follow Baupost, CLNY is a good option to consider for further research.

Atara Biotherapeutics (ATRA): ATRA is a ~2% of the 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 $39.23. There was a ~17% stake increase in Q1 2018 at prices between $18 and $48.

Note: Klarman controls ~15% of the business.

Veritiv Corporation (VRTV): VRTV is a 0.77% of the 13F portfolio position established in Q3 2014 at prices between $32.50 and $50.50. Q4 2017 saw a ~20% stake increase at prices between $22.50 and $32.50. The stock currently trades at $35.86.

Note: Klarman's ownership interest in VRTV is ~23%.

Sinclair Broadcast (SBGI), Translate Bio (TBIO) and YPF Sociedad (YPF): These very small (less than ~0.70% of the portfolio each) positions were kept steady during the quarter.

Note: TBIO had an IPO in June 2018. Its main asset is a compound to treat Cystic fibrosis (mRNA therapy) acquired from Shire plc.

Paratek Pharmaceuticals (PRTK), Sentinel Energy Services (STNL), and Trilogy Metals (TMQ): These are minutely small stakes (less than ~0.20% of the portfolio each) kept steady this quarter.

Note 1: Baupost controls ~9% of Paratek Pharmaceuticals and ~9.9% of Trilogy Metals.

Note 2: The 13F also lists a small position in Theravance Biopharma Notes.

The spreadsheet below highlights changes to Klarman's 13F stock holdings in Q4 2018:

Seth Klarman - Baupost Group - Q4 2018 13F Report

Disclosure: I am/we are long AKBA, AR, GE, LNG, NG, PRTK, 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.