On Seth Klarman & Baupost Group's Chargeurs Investment ~ market folly

Thursday, May 24, 2012

On Seth Klarman & Baupost Group's Chargeurs Investment

Seth Klarman is one of the most successful investors of our time, so it's no surprise that investors have an insatiable appetite for any information regarding Baupost Group's investments.  Today after rummaging through the French regulatory database, we found a French company Klarman's firm has been invested in for quite some time: Chargeurs (CRI:PAR).

It appears as though they originally invested in the company over 16 years ago (or at least that's the earliest trace of their ownership we could find).  But the main reason we're highlighting it is because the company says the hedge fund still holds a stake in the company.

Not to mention, it appears as though the equity is trading at lower levels now than it was back in 1996 (the first trace of Baupost's activity).

Chronicling Baupost's Chargeurs Ownership

Looking back through the collection of Baupost Group letters we've previously posted up, we found Chargeurs listed as a holding back in one of their 1996 letters.

Searching through past filings in the Autorite Des Marches Financiers (France's equivalent of the SEC), it shows that Baupost held a 5% stake in 1998.  Then after shares of the company dropped, the following year they disclosed a 10% ownership stake in Chargeurs.  In 2011, their ownership dipped below the 10% threshold.

And now, according to the company's website, Baupost currently hold the equivalent of 8.68% of Chargeurs voting rights, or 1.16 million shares.

Stock & Convertible Bonds

We use the term equivalent because it appears as though Baupost owns a mixture of shares and convertible bonds.

A search of the French regulatory system revealed that Baupost had 1.24 million shares on April 13th, 2010, the date the filing was made public.

Because preferential rights were given to existing shareholders to purchase the convertible bonds, it seems likely that Baupost would have purchased some prior to the March 12, 2011 cut off.  Bear in mind that there was also a secondary market in the preferential rights which complicates the situation a bit further. 

Convertible bondholders who hold until maturity in January 2016 will receive 6.06 shares at par, so shareholders will continue to be diluted by bondholders.  

It's situations like this that provide a good reminder that it's never wise to blindly follow a hedge fund without trying to grasp the situation and doing your own research first.

It's also an amazing example of how Klarman truly focuses on the long-term.  He's held a stake in this company for 16 years, an eternity by today's investment timeframe standards.

About Chargeurs

Per Google Finance, Chargeurs SA is "a France-based company which, manufactures and distributes wool and textiles. The Company manufactures fabrics and garment interlinings for the apparel industry. It operates in three business segments: temporary surface protection, through Chargeurs Protective Films, primarily in the building materials industry, but also in electronics and household appliances; Technical textiles, through Chargeurs Interlining and Raw material processing, through Chargeurs Wool which specializes in topmaking, which consists of designing wool blends. Chargeurs SA operates in five production unites and it's present in 34 countries on five continents."

This isn't the only French company Klarman owns, as it recently came to light that Baupost had been buying Vivendi (VIV:PAR), the stock of a French conglomerate.

Stay tuned as we'll be revealing more of Seth Klarman's investments that have been flying under the radar.  In the mean time, check out notes from Seth Klarman's Margin of Safety.

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