Tracking Seth Klarman's Baupost Group Holdings - Q1 2019 Update

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

Seth Klarman's 13F portfolio value increased from $11.52B to $11.90B this quarter.

Baupost Group increased eBay, Liberty Global, PG&E, and CBS Corp., while reducing Pioneer Natural Resources and Cheniere Energy.

The portfolio continues to be heavily concentrated with the top three positions accounting for ~28% of the 13F portfolio.

This article is part of a series that provide 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 05/15/2019. 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 Q4 2018.

Baupost Group's 13F portfolio value increased ~3% from $11.52B to $11.90B this quarter. The total number of 13F securities decreased from 35 to 33. The portfolio is heavily concentrated with Fox Corp. (NASDAQ:FOX) (NASDAQ:FOXA), eBay Inc. (NASDAQ:EBAY), Liberty Global (NASDAQ:LBTYK) (NASDAQ:LBTYA), Viasat (NASDAQ:VSAT), and Cheniere Energy (NYSEMKT:LNG) together accounting for ~45% 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

Walt Disney (DIS) and Fox Corp. (FOX) (FOXA): These two positions came about as a result of the merger transaction between Walt Disney and Twenty First Century Fox. Klarman had a huge position in Twenty First Century Fox. The deal closed in March and the terms were ~$38 per share in cash or Disney stock subject to collar and one-third of one-share of new Fox for each share of Twenty First Century Fox. Klarman's stakes in Walt Disney and Fox Corp are at 0.37% and 10.14% of the portfolio respectively.

Celgene Corp. (CELG) and Bristol-Myers Squibb (BMY): CELG is a 3.17% of the portfolio position purchased this quarter at prices between $64 and $94 and the stock currently trades at $95.51. The 1.60% BMY stake was established at prices between $45 and $54 and the stock is now at $47.12.

Note: In early January, Bristol-Myers Squibb agreed to acquire Celgene Corp. in a cash-and-stock transaction (one share of BMY and $50 cash along with a CVR that could pay $9 based on achieving regulatory milestones for each share held).

Takeda Pharma (TAK) and Gossamer Bio (GOSS): TAK is a 1.83% of the portfolio stake established this quarter at prices between $16.70 and $21.50 and the stock currently trades at $17.38. GOSS is a minutely small 0.22% portfolio stake established this quarter. Gossamer Bio had an IPO in February and shares started trading at ~$18 per share. The stock is currently at $21.14.

Stake Disposals

Twenty First Century Fox: This was the largest position at ~29% of the portfolio as of last quarter. In December 2017, Walt Disney Company agreed to acquire the film & entertainment assets of Twenty First Century Fox and that transaction closed in March. What remained became Fox Corp - the assets of Fox Corp include broadcasting networks and stations, news channel, business network, and Sports - FS1 & FS2, Fox Deportes, and Big Ten Network. Baupost established this position in Q3 2015 at prices between $25.41 and $33.52 and continued buying through Q3 2018 at prices between $24 and $50.

Note: Terms of the transaction were ~$38 per share in cash or Disney stock subject to collar and one-third of one-share of new Fox for each share of Twenty First Century Fox. DIS and FOX currently trade at ~$136 and ~$37 respectively.

AMC Entertainment (AMC): AMC was 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 disposal this quarter was at prices between $12.25 and $16. The stock is now at $13.40.

Cardinal Health (CAH): CAH was a small 0.57% of the portfolio position as of last quarter. It was first 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 in Q3 2018 and that was followed with a ~70% reduction last quarter at prices between $43 and $57.50. The elimination this quarter was at prices between $44 and $57. The stock currently trades at $45.23.

Nexeo Solutions WTS (NASDAQ:NXEOU), Shire plc (NASDAQ:SHPG), Saban Capital Acquisition Corp. (SCAC), Sentinel Energy Services (STNL), and YPF Sociedad (YPF): These very small (less than ~0.7% of the portfolio each) stakes were disposed this quarter.

Note: Takeda Pharmaceuticals acquired Shire plc in a transaction that closed in January. Although the position sizes relative to the portfolio were very small, Baupost had significant ownership stakes in the following businesses: ~9% of Saban Capital Acquisition and 5.28% of Nexeo Solutions.

Stake Increases

eBay Inc. (EBAY): EBAY is a large (top three) 9.14% of the portfolio stake established last quarter at prices between $26 and $33 and increased by ~40% this quarter at prices between $28 and $38. The stock currently trades at $37.27.

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

Liberty Global (LBTYK) (LBTYA): LBTYK is a top-three ~9% portfolio stake established in Q3 2018 at prices between $25 and $28.50 and increased by ~120% last quarter at prices between $19.50 and $27.50. There was another ~27% stake increase this quarter at prices between $19.80 and $25.80. The stock currently trades at $25.03.

Allergan plc (AGN): AGN is a large 5.87% 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. Since then, the activity has been minor. The stock currently trades well below those ranges at ~$140.

PG&E Corporation (PCG): PCG is 3.66% stake established in Q1 2018 at prices between $38 and $45 and increased by ~43% next quarter at prices between $39 and $47. Q3 2018 saw a stake doubling at prices between $41.50 and $47. This quarter saw another 58% stake increase at prices between $6 and $24. The stock currently trades at $18.17.

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. The stock fell precipitously in January as PG&E filed for bankruptcy. Many hedge funds stepped in to purchase shares during that period.

CBS Corp. (CBS) and Nexstar Media Group (NXST): CBS is a 3.41% position purchased last quarter at prices between $42 and $58.50 and increased by 235% this quarter at prices between $43.50 and $52. The stock currently trades at $48.36. The very small 0.91% NXST position was established last quarter at prices between $71 and $88 and it is now at ~$108. There was a minor ~5% stake increase this quarter.

McKesson Corp. (MCK): MCK is a 2.77% 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 ~$126. There was a ~20% stake increase in Q1 2018 at prices between $139 and $177 and that was followed with another one-third increase in Q3 2018 at prices between $123 and $139. Last quarter saw a ~20% selling at prices between $108 and $137 while this quarter saw a two-thirds increase at prices between $110 and $136.

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.

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 $24.17. There was a ~17% stake increase in Q1 2018 at prices between $18 and $48. For investors attempting to follow, ATRA is a good option to consider for further research.

Note: Klarman controls ~15% of the business.

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 $77.59. The two quarters through Q3 2018 had seen a stake doubling at prices between $79 and $95 while last quarter saw a ~25% selling at prices between $71 and $94. There was a ~20% stake increase this quarter at prices between $73 and $87 and the position is now at 1.61% of the portfolio.

Stake Decreases

Cheniere Energy (LNG): LNG is a top five position at 7.25% 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 $67.81. This quarter saw a ~11% trimming.

Note: Baupost controls ~5% of Cheniere Energy.

Qorvo Inc. (QRVO): QRVO is a large 6.38% 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 $68.11. Last quarter saw a ~3% trimming and that was followed with a marginal reduction this quarter.

Note: Baupost controls 9% of the business.

Synchrony Financial (SYF): SYF, the November 2015 split-off from General Electric (GE), is at 3.82% 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. Q3 2018 saw an about turn: ~44% reduction at prices between $29 and $35 and that was followed with a ~11% trimming last quarter. The stock currently trades at $35.24. There was a minor trimming this quarter.

Pioneer Natural Resources (PXD): PXD was a minutely small stake established in Q3 2017. The position was built up to a 2.56% 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 last quarter. This quarter saw a reversal: ~55% selling at prices between $130 and $153. The stock is now at ~$155. The stake is at 2.56% of the portfolio.

Sinclair Broadcast (SBGI): The very small 0.94% SBGI stake saw a ~3% trimming this quarter.

Kept Steady

Viasat (VSAT): VSAT is a large (top five) position at 7.25% 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 ~$91. 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 2.76% position in Tesla Notes had seen a 20% increase in Q3 2018 and was kept steady since.

Colony Capital (CLNY): The 2.22% 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 $5.21. For investors attempting to follow Baupost, CLNY is a good option to consider for further research.

Antero Resources Corporation (AR): AR is a 2.12% 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 follow: the three quarters through Q1 2018 had seen a combined ~25% stake increase at prices between $17 and $22. Last quarter also saw a ~8% increase. The stock current trades well below those ranges at ~$8.

Note: Klarman controls ~9% of the business.

Theravance Biopharma (TBPH): TBPH is a 1.77% 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 $20.64.

Note: Klarman controls ~19% of the business.

Univar Inc. (UNVR): UNVR is a 1.77% stake established in Q3 2018 at prices between $25.50 and $31 and increased by ~440% last quarter at prices between $16.25 and $31. The stock is now at $22.47. For investors attempting to follow Baupost, UNVR is a good option to consider for further research.

Note: Baupost controls 6.71% of Univar.

Akebia Therapeutics (AKBA): The 1.68% 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 $5.62.

Note: Baupost controls ~21% of Akebia Therapeutics.

Veritiv Corporation (VRTV): VRTV is a 0.79% 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 $21.26.

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

GTY Technology (GTYH), Paratek Pharmaceuticals (PRTK), Translate Bio (TBIO), and Trilogy Metals (TMQ): These are minutely small stakes (less than ~0.20% of the portfolio each) kept steady this quarter.

Note 1: TBIO had an IPO in June 2018. Its main asset is a compound to treat cystic fibrosis (mRNA therapy) acquired from Shire plc.

Note 2: Baupost controls ~9% of Paratek Pharmaceuticals and ~9.9% of Trilogy Metals.

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

The spreadsheet below highlights changes to Klarman's 13F stock holdings in Q1 2019:

Seth Klarman - Baupost Group - Q1 2019 13F Report Q/Q Comparison

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