Friday, October 11, 2013

What We're Reading ~ Hedge Fund Links 10/11/13

Mandel's Lone Pine to launch first hedge fund in a decade [II Alpha]

Jim Chanos' recent WSJ Conference speech [ValueWalk]

This once $14b hedge fund's future is in doubt [CNBC]

Andrew Ross Sorkin's interview with Bill Ackman [NYTimes]

On Bruce Berkowitz's new hedge fund [WSJ]

George Soros on the future of Europe [GeorgeSoros]

Hedge funds expand bets with most junk since 2008 [Bloomberg]

Record hedge fund inflows come at a price [FT]

Meredith Whitney raising money for new hedge fund [Reuters]

Some Tiger Cub performance numbers [II Alpha]

DE Shaw shuts doors to new investors [FT]

Legal giants wage ware over role of activist investors [Forbes]

Cannell Capital Files 13D on Hooper Holmes (HH), Sends Letter to Board

Carlo Cannell's hedge fund Cannell Capital filed a 13D on shares of Hooper Holmes (HH).  They've disclosed a 14.24% ownership stake in the company with 9,946,766 shares.

The activist 13D details that Cannell was out buying in mid-August at prices between $0.36 and $0.38.  Carlo Cannell then attached a letter to the board as well with comments.

Cannell's Letter To Hooper Holmes

"Mr. Ronald Aprahamian
Chairman of the Board
Hooper Holmes, Inc.
170 Mt. Airy Road Basking Ridge, NJ 07920 

Dear Mr. Aprahamian, 

Cannell Capital LLC ("CC") writes today with several suggestions and comments for Hooper Holmes, Inc. ("HH"), the common equity of which CC, or accounts managed by CC, owns 14.2% as of September 30, 2013. 

First, in our opinion, the size and remuneration of the Board of Directors ("BOD") is too large.  The $73,000 to $104,000 each non-executive member has received per annum as the stock price has slid from $17.43 in April 2000 to $0.36 in August 2013 is galling.  We estimate aggregate cash compensation of $1.0 million for its six directors.  That is simply not reasonable (see Exhibit "A" enclosed).  Given the pro forma size following the divestiture of Portamedic, which we reckon should decrease revenues 60%, we call for the removal of Elaine Rigolosi for two reasons (i) as Chair of the Compensation Committee she is culpable for the egregiousness of compensation over her 25 terms; (ii) she is in our opinion less qualified than other new members of the Board. 

Second, the BOD should "downgrade" the auditor of HH. The $593,000 that KPMG LLP received last year is excessive given the current manifestation of HH. As part and parcel of this downgrade we call for the BOD to effect a reverse stock split sufficient - amongst other measures - to effect in a Form 15 filing a notice of its intent to "go dark." (Here is list of pros and cons for which we suggest for illustrative purposes: ). 

Lastly, we wish to congratulate HH for negotiating the sale of Portamedic. Our 2015 forecast of the Health & Wellness segment, now unencumbered by the Portamedic "cancer", is as follows: 

(FY Dec, $ Million)             Good            Great
Health & Wellness Growth  20%             25%
Revenue                                $72              $78
Net Income                           2                  4  

We are gratified by the recent progress.  We think the current pro forma enterprise value of $12 million is a paltry price to pay for a growing and good margin business, now liberated from the musty legacy business.  Combined with continued and robust reduction of superfluous expenses, we believe this "phoenix" could yield over $8 million in cash flow from operations in the next couple of years.  This would imply an attractive high-double-digit-percent return should a strategic buyer become interested in this growing niche - an outcome for which we both foretell and hope. 

/s/ J. Carlo Cannell
Managing Member"

About Hooper Holmes

Per Google Finance, Hooper Holmes is "engaged in providing health risk assessment services to the life insurance and health industries Hooper Holmes operates in one business segment and provides paramedical and medical examinations, personal health interviews and record collection, and laboratory testing, which help life insurance companies evaluate the risks associated with underwriting policies. It also conducts wellness screenings for wellness companies, disease management organizations and health plans. The Company's core activities consist of arranging for paramedical examinations on behalf of insurance carriers, primarily in connection with such carriers’ processing and evaluation of the risks associated with underwriting insurance policies - mainly life insurance policies. In October 2013, the Company sold its Portamedic service line to American Para Professional Systems, Inc."

Hear Cannell's Latest Investment Ideas

Carlo Cannell will be presenting his latest investment ideas at the Las Vegas Value Investing Congress next spring.  For a limited time, Market Folly readers can receive a huge 50% discount by clicking here.

Eminence Capital Boosts Sonic Automotive Stake

Ricky Sandler's hedge fund firm Eminence Capital filed a 13G with the SEC regarding shares of Sonic Automotive (SAH).  Per the filing, Eminence has disclosed a 5.1% ownership stake with 2,065,739 shares.

This marks an increase of 3% in the number of shares they own since the end of the second quarter.  The filing was required due to portfolio activity on September 30th.

Eminence has also held another automotive play as their top holding at the end of Q2 was Advance Auto Parts (AAP).

Per Google Finance, Sonic Automotive is "engaged in automotive retailing in the United States. The Company’s dealerships provide services, including sales of both new and used cars and light trucks; sales of replacement parts, performance of vehicle maintenance, manufacturer warranty repairs, paint and collision repair services (Fixed Operations) and arrangement of extended service contracts, financing, insurance and other aftermarket products (F&I) for its customers."

Head here for more recent activity from Eminence.

Barry Rosenstein Talks Outerwall, JANA Reduces Agrium Stake

JANA Partners founder Barry Rosenstein appeared on CNBC yesterday and we wanted to highlight some of his thoughts.  Additionally, JANA Partners filed an amended 13D with the SEC, indicating they've reduced their stake in Agrium (AGU).

On Outerwall (OUTR):  In his interview, Rosenstein said, "Nothing's off the table, there's a lot of options with this company... There's a lot of people interested in it, I've been contacted by a number of people since we showed up."  JANA's founder wants the company to return cash to shareholders.  He also thinks their Redbox DVD rental has a long life ahead of it.  We highlighted how JANA recently went activist on OUTR.

On what JANA looks for in an investment:  "We don't necessarily screen... we look for two things: value and catalysts.  Basic businesses, easy to understand business models, recurring revenues, and then there's gotta be a catalyst.

Reduced Agrium stake:   Per the SEC filing, JANA has sold over 7.3 million shares of their Agrium (AGU) stake.  The filing was required due to activity on October 8th and they're now left with just over 3.9 million shares.

Embedded below is the brief video CNBC has uploaded of Rosenstein's interview:

For more on this hedge fund, head to some of JANA's other recent portfolio activity.

Wednesday, October 9, 2013

What We're Reading ~ Analytical Links 10/9/13

Some big investors can't get enough of Europe's toxic assets [Quartz]

On cash flow and destiny [Horowitz]

5 things you need to know about Janet Yellen [WSJ]

For Yellen, a focus on reducing unemployment [NYTimes]

Invest in what Wall Street hates [Marketwatch]

Why does value investing work? [Turnkey Analyst]

On avoiding the next bubble [WSJ]

Verizon mega-bond could pave way for AT&T [Reuters]

A look at eBay's CEO John Donahoe [Barrons]

How Twitter's business model is just like broadcast TV, only worse [Buzzfeed]

A road map to high value healthcare delivery [Healthcare Transformation Institute]

A look at Tower Group [Aleph Blog]

Is Medifast a cry baby or corporate bully? [WhiteCollarFraud]

Nest Labs reinvents the smoke alarm [NYTimes]

Tuesday, October 8, 2013

Graham & Doddsville Fall Newsletter From Columbia Business School

Columbia Business School is out with its Fall 2013 edition of the Graham & Doddsville newsletter.  This issue features an interview with Aquamarine Capital's Guy Spier as well as a focus on Koch Industries, Homex (HMX) 9.75% Sr Guaranteed Notes, Wabash National (WNC), and Active Network (ACTV).

Spier gave an interesting interview about his career and investing style.  Here's a few select quotes:

"Something I believe quite strongly is that if you want to understand who an investor is, you need to understand their relationship to money in general, their relationship to the money that they specifically manage, and what the money means to them."

"At the end of the day, every successful investor ends up differentiating themselves on the unique aspects of their personality and who they are.  I'm not trying to be the best investor.  I'm just trying to be Guy Spier."

In his interview, Guy also walks through his thinking on Reciprocal Patent Exchange (RPX), as well as Fiat (FIATY).

Embedded below is the Fall 2013 edition of the Graham & Doddsville newsletter:

If you missed it in the past, Graham & Doddsville also had a great interview with JANA Partners.

Carl Icahn Reveals Talisman Energy Position, Gains Board Seats at Nuance Communications

Carl Icahn has been busy with positions in Talisman Energy (TLM) and Nuance Communications (NUAN).  The breakdown is below:

Icahn's New Talisman Energy Stake

Icahn simultaneously tweeted and filed a 13D with the SEC, disclosing a 5.97% ownership stake in Talisman Energy (TLM).  He owns 61,554,602 shares and this is a brand new position for him.

On Twitter, Icahn noted that he, "may have conversations with mgmt re strategic alternatives, board seats, etc."

So if you aren't already, follow @Carl_C_Icahn on Twitter, and don't forget to follow @MarketFolly if you haven't already.

Per Google Finance, Talisman Energy is "an oil and gas producers, through a combination of exploration, development and acquisitions. The Company's business activities include exploration, development, production, transportation and marketing of crude oil, natural gas and natural gas liquids. Talisman's three main operating areas are North America, the North Sea and Southeast Asia."

Icahn Gains Board Seats at Nuance Communications

Icahn has reached an agreement with Nuance Communications (NUAN) to gain 2 board seats.  Carl Icahn's son Brett Icahn will become a director, along with David Schecter.

Per Google Finance, Nuance Communications is "a provider of voice and language solutions for businesses and consumers globally. The Company's solutions are used in healthcare, mobile, consumer, enterprise customer service, and imaging markets. The Company offers accuracy, natural language understanding capability, domain knowledge and implementation capabilities. The Company's solutions are based on the Company's voice and language platform and are used by businesses for tasks and services, such as requesting information from a phone-based self-service solution, dictating medical records, searching the mobile Web by voice, entering a destination into a navigation system, or working with portable document format (PDF) documents."

TPG-Axon Discloses Outerwall Stake

Per a 13G just filed with the SEC, Dinakar Singh's TPG-Axon has revealed a 5.1% passive stake in Outerwall (OUTR) with shares 1,434,429.  This is a brand new position for them and the filing was required due to activity on October 4th.

We just posted about how JANA Partners has gone activist on Outerwall and now TPG-Axon has disclosed a stake in the company formerly known as Coinstar as well.

The NYPost just highlighted that the company has "rebuffed fresh approaches from buyout firms."  Piper Jaffray has also said they see a sum of the parts value of $70 for OUTR.

Conversely, Bloomberg points out that around 30% of OUTR shares were sold short as of the beginning of October.

Per Google Finance, Outerwall is "a provider of automated retail solutions, which offers convenient products and services. The Company's offerings in automated retail include its Redbox business, where consumers can rent or purchase movies and video games from self-service kiosks (Redbox segment), and its Coin business, where consumers can convert their coin to cash or stored value products at self-service coin counting kiosks (Coin segment). Its New Ventures business (New Ventures segment) is focused on identifying, evaluating, building, and developing self-service concepts in the marketplace."

Monday, October 7, 2013

Strategist Jeff Saut's Latest Market Commentary

Market strategist Jeff Saut's latest weekly commentary is entitled "Ashes to Ashes" and that's what he thinks the budget worries turn into by this time next week.  He then focuses on investor sentiment these days.

Saut points out views from individual investors he's been seeing:

"(They) seem to be 'frozen' like deer in the headlights, believing that you need to have a feel good environment to have a secular bull market.  The reality of the matter is that when you finally get that 'feel good' environment, it tends to be pretty late in the overall scheme of things."

Saut advises caution when it comes to fixed income as that had been the 'easy buy' and rates have increased this summer.  Regarding equities, he feels that you shouldn't worry too much about the worry surrounding Q3 earnings.

Embedded below is Jeff Saut's latest commentary:

You can download a .pdf here.

Ruffer's Q3 Letter: Still Anticipating Eventual Inflation

Jonathan Ruffer is out with his Ruffer Investment Company Q3 letter with his latest market commentary.  Ruffer leads off with some prudent advice:

"Today's investment world is full of distortions, and the effect on investors is that they rationalise these fantasies, so that what is false is represented in their minds as true.  Prudent investors will want to reverse this process!"

The main distortion he is writing about currently is that quantitative easing has been effective at buying time and getting investors to pile into risk assets, but there hasn't been a return to long-term economic growth.

Ruffer believes that various entities around the world like the Federal Reserve are determined to stave off deflation.  As such, Ruffer believes that sooner or later they'll overdo it when it comes to money creation and we'll see inflation.  And this is how they continue to invest.

Embedded below is Ruffer's investment commentary for Q3:

For more from this investment firm, head to Ruffer on the 3 arrows of deflation.

JANA Partners Goes Activist on Outerwall (OUTR)

Barry Rosenstein's hedge fund JANA Partners filed a 13D on shares of Outerwall (OUTR) and has disclosed a new 13.5% ownership stake in OUTR with 3,777,995 shares.

The activist 13D filing includes the standard boilerplate that JANA expects to talk with management.  In particular, they want to focus on "a review of strategic alternatives including exploring a strategic transaction, selling or discontinuing certain businesses, or pursuing a sale."

Outerwall was formerly called Coinstar and is known for their Redbox DVD rental kiosks, among other businesses. 

JANA was out buying in late August around $62-63, throughout September around $48, and then bought 1 million shares on October 4th at $52.25.

This hedge fund has been busy lately and we also recently highlighted how JANA went activist on Safeway as well.