Tracking Seth Klarman's Baupost Group Holdings - Q2 2019 Update

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

Seth Klarman’s 13F portfolio value decreased from $11.90B to $11.05B this quarter.

Baupost Group increased Liberty Global and CBS Corp. while dropping Pioneer Natural Resources.

The portfolio continues to be heavily concentrated with the top three positions accounting for ~33% 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 08/13/2019. 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 Q1 2019.

Baupost Group's 13F portfolio value decreased ~7% from $11.90B to $11.05B this quarter. The total number of 13F securities decreased from 33 to 30. The portfolio is heavily concentrated with Liberty Global (NASDAQ:LBTYA) (NASDAQ:LBTYK), Fox Corp. (NASDAQ:FOX) (NASDAQ:FOXA), ViaSat (NASDAQ:VSAT), eBay Inc. (NASDAQ:EBAY), and Cheniere Energy (NYSEMKT:LNG) together accounting for ~48% 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

XPO Logistics (XPO): XPO is a small 0.78% portfolio stake established this quarter at prices between $52 and $69 and the stock currently trades at $65.04.

Stake Disposals

Pioneer Natural Resources (PXD): PXD was a minutely small stake established in Q3 2017. The position was built 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 in Q4 2018. Last quarter saw a reversal: ~55% selling at prices between $130 and $153. The elimination this quarter was at prices between $141 and $176. The stock is now at ~$123.

Walt Disney (DIS): The position 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. The small 0.37% portfolio DIS stake was disposed during the quarter at prices between $112 and $142. The stock currently trades at $133.

Celgene Corp (CELG): CELG was a 3.17% of the portfolio position purchased last quarter at prices between $64 and $94 and sold this quarter at prices between $92 and $99. The stock currently trades at $93.31.

Note: In early January, Bristol-Myers Squibb (BMY) 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). It is interesting that Baupost chose to increase BMY (see below) and drop CELG even though there is an arbitrage spread available in CELG.

GTY Technology (GTYH): The minutely small 0.01% stake was disposed during the quarter.

Stake Increases

Liberty Global: LBTYK is currently the largest position at ~12% of the portfolio. It was established in Q3 2018 at prices between $25 and $28.50 and increased by ~120% next quarter at prices between $19.50 and $27.50. There was another ~27% stake increase last quarter at prices between $19.80 and $25.80 and that was followed with a ~12% stake increase this quarter. The stock currently trades at $25.73.

Bristol-Myers Squibb: The large 5.34% BMY stake saw a 225% stake increase during the quarter at prices between $44.50 and $49.50. The position was established last quarter at prices between $45 and $54 and the stock is now near the low end of those ranges at $45.75. For investors attempting to follow, BMY is a good option to consider for further research.

CBS Corp. (CBS) and Nexstar Media Group (NXST): CBS is a fairly large 4.52% position purchased in Q4 2018 at prices between $42 and $58.50 and increased by 235% last quarter at prices between $43.50 and $52. This quarter also saw a ~17% stake increase at prices between $46.50 and $52.50. The stock currently trades at $43.35. For investors attempting to follow, CBS is a good option to consider for further research. The small 1.28 % NXST position was established in Q4 2018 at prices between $71 and $88 and it is now at ~$91. There was a minor ~5% stake increase last quarter and that was followed with a ~40% stake increase this quarter at prices between $98 and $118.

Note: The long-rumored reunification of CBS and Viacom (VIAB) was announced earlier this week.

Atara Biotherapeutics (ATRA): ATRA is a 1.27% of the portfolio stake established in Q4 2014 at around $19 per share. The original position was almost doubled next quarter at prices between $18 and $42.90. Recent activity follow: there was a ~17% stake increase in Q1 2018 at prices between $18 and $48 and that was followed with a ~10% stake increase this quarter at prices between $19 and $41. The stock currently trades well below those ranges at $13.35. For investors attempting to follow, ATRA is a good option to consider for further research.

Note: Klarman controls ~17% of the business.

Translate Bio (TBIO) and Trilogy Metals (TMQ): These two small stakes (less than ~1% of the portfolio each) were increased during the quarter. The ~1% TBIO stake saw a ~35% stake increase at prices between $8.75 and $13.25 and the stock is now at $7.94. The very small 0.36% TMQ stake saw a minor ~5% increase during the 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 ~10% of Trilogy Metals.

Stake Decreases

eBay Inc.: EBAY is a large (top five) 8.63% of the portfolio stake established in Q4 2018 at prices between $26 and $33 and increased by ~40% last quarter at prices between $28 and $38. There was a ~18% selling this quarter at prices between $35.50 and $40. The stock currently trades at $39.44.

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

Cheniere Energy: LNG is a top five position at 6.61% 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 $59.04. Last two quarters have also seen a ~25% selling at prices between $60 and $70.

Note: Baupost controls ~4% of Cheniere Energy.

Allergan plc (AGN): AGN is a large 5.58% 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. This quarter saw a ~23% reduction at prices between $116 and $167. The stock currently trades at ~$156.

Note: Allergan and AbbVie (ABBV) are merging in a cash-and-stock (0.866 shares of ABBV and $120 cash for each AGN) deal announced in June.

Qorvo Inc. (QRVO): QRVO is a large 5.23% 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 $70.11. Q4 2018 saw a ~3% trimming and that was followed with a marginal reduction last quarter. This quarter saw a ~18% selling at prices between $60 and $78.

Note: Baupost controls ~7% of the business.

McKesson Corp. (MCK): MCK is a 3.16% 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 ~$141. 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. Q4 2018 saw a ~20% selling at prices between $108 and $137 while last quarter saw a two-thirds increase at prices between $110 and $136. There was a ~8% trimming this quarter.

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.

Synchrony Financial (SYF): SYF, the November 2015 split-off from General Electric (GE) is at 2.91% 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. Last two quarters saw a ~12% trimming and that was followed with a one-third selling this quarter at prices between $32 and $35. The stock currently trades at $32.76.

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. The two quarters through Q3 2018 had seen a stake doubling at prices between $79 and $95 while next quarter saw a ~25% selling at prices between $71 and $94. There was a ~20% stake increase last quarter at prices between $73 and $87 and the position is now at 1.71% of the portfolio. This quarter saw a ~8% trimming.

Takeda Pharma (TAK): TAK is a 1.51% of the portfolio stake established last quarter at prices between $16.70 and $21.50 and the stock currently trades at $16.86. There was a ~12% trimming during the quarter.

Sinclair Broadcast (SBGI): The very small 0.27% SBGI stake saw a ~80% selling this quarter.

Kept Steady

Fox Corp.: The position 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 stake in Fox Corp is the second-largest in the portfolio at ~11%. The stock currently trades at $32.81.

ViaSat: VSAT is a large (top three) 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 $76.90. 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.

PG&E Corporation (PCG): PCG is ~5% 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. Last quarter saw another 58% stake increase at prices between $6 and $24. The stock currently trades at $14.39.

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.

Tesla (NASDAQ:TSLA) Notes: The 2.68% position in Tesla Notes had seen a 20% increase in Q3 2018 and was kept steady since.

Colony Capital (CLNY): The 2.25% stake in Colony Capital came about as a result of the three-way merger of Colony Capital (CLNY), 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. They control ~10% of CLNY and their overall cost-basis is ~$12.50 per share. CLNY currently trades well below that at $4.43. For investors attempting to follow Baupost, CLNY is a good option to consider for further research.

Univar Inc. (UNVR): UNVR is a 1.90% stake established in Q3 2018 at prices between $25.50 and $31 and increased by ~440% next quarter at prices between $16.25 and $31. The stock is now at $18.75. For investors attempting to follow Baupost, UNVR is a good option to consider for further research.

Note: Baupost controls ~7% of Univar.

Antero Resources Corporation (AR): AR is a 1.43% 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. Q4 2018 also saw a ~8% increase. The stock current trades well below those ranges at $3.44

Note: Klarman controls ~9% of the business.

Theravance Biopharma (TBPH): TBPH is a 1.38% of the 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 last major activity was a ~25% increase in Q4 2016 at prices between $24.50 and $38.50. The stock is now at $21.27.

Note: Klarman controls ~19% of the business. The 13F also lists a small position in Theravance Biopharma Notes.

Akebia Therapeutics (AKBA): The ~1% 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 they agreed to redeem at a conversion price of $4.17) for which they received 24.47M shares of AKBA (0.37433:1 ratio). Overall their cost-basis is around $19, much higher than the current price of $4.30.

Note: Baupost controls ~21% of Akebia Therapeutics.

Veritiv Corporation (VRTV): VRTV is a 0.63% 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 $16.14.

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

Gossamer Bio (GOSS): GOSS is a minutely small 0.25% portfolio stake established last quarter. Gossamer Bio had an IPO in February and shares started trading at ~$18 per share. It currently trades at around the same price.

Paratek Pharmaceuticals (PRTK): The minutely small 0.09% of the portfolio position in PRTK was kept steady during the quarter.

Note: Baupost controls ~9% of Paratek Pharmaceuticals and.

The spreadsheet below highlights changes to Klarman's 13F stock holdings in Q2 2019:

Seth Klarman - Baupost Group Q2 2019 13F Report Q/Q Comparison

Disclosure: I am/we are long ABBV, AKBA, AR, ATRA, 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.