Wednesday, September 2, 2015

What We're Reading ~ 9/2/15

Valeant Pharmaceuticals (VRX): a detailed look inside a dangerous story [AZ Value]

Thoughts on shorting [Fritz Investments]

When to deploy capital [Aleph Blog]

A look at Ed Borgato's process [Richard Chignell]

Analysis of Liberty Global's Latin American assets (LILA) [Clark Street Value]

The China growth story is now broken [Salient Partners]

The Fed is set to make a dangerous mistake [FT]

A roadmap for a world without drivers [Alex Rubalcava]

How Tesla will change the world [Wait But Why]

The FCC imposes Netflix's broadband policy [WSJ]

An internet mortgage provider reaps the rewards [NYTimes]

Lurking problems with exchange traded funds [Zero Hedge]

Market plunge provides harsh lessons for ETF investors [Barrons]

Mexico's economy was supposed to soar; it's starting to flop [Washington Post]

Hotels fight back against sites like Expedia and Priceline [NYTimes]

Is Silicon Valley in another bubble and what could burst it? [Vanity Fair]

Pennant Capital Cuts Universal Alloy Stake Further

Alan Fournier's hedge fund firm Pennant Capital has been gradually selling down its Universal Stainless & Alloy Products (USAP) position.  Per a recently filed Form 4 with the SEC, this is now the second time in recent months that they've trimmed the stake.

Their latest filing shows activity on August 28th, 31st, and September 1st.  In total, they sold 200,534 shares at prices of $13.01 and $13.02.  After these sales, Pennant still owns 849,069 shares of USAP.

We've also highlighted a stock Pennant has been buying lately.

Per Google Finance, "Universal Stainless & Alloy Products "manufactures and markets semi-finished and finished specialty steel products, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. The Company's manufacturing process involves melting, remelting, heat treating, hot and cold rolling, forging, machining and cold drawing of semi-finished and finished specialty steels. The Company's products are sold to service centers, forgers, rerollers, original equipment manufacturers (OEMs) and wire redrawers. The Company also performs conversion services on materials supplied by customers. The Company's products are manufactured in a range of grades and melt qualities, including argon oxygen decarburization (AOD), electro-slag remelted (ESR), vacuum induction melting (VIM) and vacuum-arc remelted (VAR)."

Pleasant Lake Partners Boosts Del Taco & Hemisphere Media Stakes, Sends Letter to Magnachip

Jonathan Lennon's hedge fund firm Pleasant Lake Partners has filed numerous documents with the SEC lately regarding its positions.

Adds to Del Taco Restaurants Stake

First, Lennon's firm has boosted its stake in Del Taco Restaurants (TACO).  Per a Form 4 filed with the SEC, Pleasant Lake was out buying shares of TACO on August 28th and 31st at prices of $13.2 and $12.99. In total, they bought 107,400 shares and now own over 4.98 million TACO shares.  Pleasant Lake initially started a Del Taco stake a few months ago.

Per Google Finance, Del Taco is "a food service company. The Company operates quick service restaurant (QSR) chain under Del Taco in the United States. The Company offers Mexican- cuisine and American classics menu. Its menu includes various categories, such as tacos, burritos, Fresca bowls, American grill, quesadillas and nachos, desserts and shakes, sides and salads, combos and fiesta pack, kid's meals, drinks, breakfast, and Buck & Under. In addition, its menu includes Double Beef Classic Taco, Del Combo Burrito, Del Beef Burrito, MACHO Combo Burrito, Double Del Cheeseburger, Bacon Double Del Cheeseburger, Deluxe Chili Cheddar Fries, MACHO Nachos, Caramel Cheesecake Bites, Chocolate Chip Cookies, CrunchTada Tostada and Turkey CrunchTada Tostada, among others. The Company and its franchisees operate approximately 550 restaurants in 16 states."

Increases Hemisphere Media Position

Second, Pleasant Lake Partners has also filed a Form 4 regarding its position in Hemisphere Media (HMTV).  We covered earlier how this hedge fund has been buying HMTV shares and they're at it again.

Their filing notes they were accumulating more shares on August 27th, 28th, and 31st at prices of $13.58, $13.63, and $13.59.  In total, they bought 28,556 shares and now own over 1.94 million HMTV shares.

Per Google Finance, Hemisphere Media is "the United States Spanish-language media company serving the United States Hispanic and Latin American markets with approximately five Spanish-language cable television networks distributed in the United States, over two Spanish-language cable television networks distributed in Latin America, and is a broadcast television network in Puerto Rico. The Company owns and operates the Spanish language networks and content production platform, including movie and telenovela channels, two Hispanic entertainment genres, and the cable television networks. The Company's the United States Hispanic groups include WAPA is an independent broadcast television network; WAPA America is a Spanish-language cable television network; Cinelatino is the Spanish-language cable movie network; Pasiones is the Hispanic genre telenovelas; Centroamerica TV features news and entertainment programming, and Television Dominicana features news and entertainment programming.."

Sends Letter to Magnachip Semiconductor

We've previously posted Pleasant Lake's presentation on Magnachip Semiconductor (MX).  They now own 9.9% of the company, up from the previous 9.5% stake they held.  Lennon recently filed an amended 13D with the SEC and included this letter to the board:

"Dear Doug and Randal, 

As you know, funds managed by Pleasant Lake Partners (“PLP”) are one of the largest shareholders of Magnachip Semiconductor Corporation (“Magnachip” or the “Company”) with a 9.9% stake in the Company.  We have stated to you our desire to increase the size of our investment and have requested that the Board consider removing the Company’s poison pill.  We have also requested to be included in any upcoming auction process for the Company.  However, we have yet to receive a formal response to either request.  Furthermore, while the Company has formed a Strategic Review Committee, shareholders have seen little tangible progress to date.  We believe the Company needs major and immediate strategic change and that the best course for value maximization for all shareholders is to sell Magnachip.  Accordingly, in order to effectuate this, we are writing to you today to formally submit an indication of interest to purchase all of the outstanding shares of Magnachip that PLP does not currently own at a price of $10.00 per share in cash (the “Proposal”).  The Proposal represents a premium of approximately 29% to Friday’s closing price and approximately 58% to PLP’s average cost and is subject to confirmatory due diligence and the negotiation of definitive transaction documents. 

Since filing our 13D on June 10, we have sought to work constructively with you to realize the full value of these assets for the benefit of all shareholders.  And while we appreciate the time you have spent discussing these issues with us, the accelerating pace of consolidation in the semiconductor industry, coupled with what believe are Magnachip’s strategically valuable assets and intellectual property, has led us to make this Proposal.  We have consistently heard from other shareholders that the status quo at Magnachip is not acceptable and that the Company, in whole or in part, would be worth significantly more to strategic acquirers than as a standalone entity.  While we are obviously not such a strategic acquirer, we think shareholders should have the ability to decide for themselves whether to accept our Proposal at $10.00 per share, or wait for other potentially better offers; were any such offers to emerge, we would be prepared to vote our shares in favor of an offer that we believe is materially superior to our Proposal. 

We respectfully ask that you and the Board immediately engage with us to discuss the Proposal and negotiate a transaction.  We are prepared to devote all necessary resources to evaluate and consummate a transaction, and believe we can obtain the necessary financing to do so. 

We look forward to hearing from you and are ready to speak at your convenience.  

/s/ Jonathan Lennon
Managing Member
Pleasant Lake Partners LLC"

Monday, August 31, 2015

Viking Global Boosts Mallinckrodt Position

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding its position in Mallinckrodt (MNK).  Per the filing, Viking now owns 4.9% of the company with over 5.72 million shares.

This is up slightly from the 5.41 million shares they owned at the end of the second quarter.  The filing was made due to activity on August 21st.

We've also highlighted some of Viking Global's short positions here.

Per Google Finance, Mallinckrodt is "a global specialty pharmaceuticals company. The Company develops, manufactures, markets and distributes both branded and generic specialty pharmaceuticals, active pharmaceutical ingredients (API) and diagnostic imaging agents. The Company uses its API products in the manufacture of its generic pharmaceuticals and also sells them to other pharmaceutical companies. The Company operates through two segments: Specialty Pharmaceuticals and Global Medical Imaging. The Company’s Specialty Pharmaceuticals segment develops, manufactures and sells, through its Brands business, drugs, including EXALGO (hydromorphone HCl) Extended-Release Tablets and GABLOFEN. The Company’s Global Medical Imaging segment develops, manufactures and markets contrast media and delivery systems (CMDS). The Company offers INOMAX Total Care (inhaled nitric oxide), a neonatal critical care product."

Warren Buffett's Berkshire Hathaway Boosts Phillips 66 Stake

Warren Buffett's conglomerate Berkshire Hathaway has filed a Form 3 and Form 4 with the SEC.  Per the filing, Berkshire now owns over 57.9 million shares of Phillips 66 (PSX).

Berkshire was out buying on August 26th - 28th at prices between $71.56 and $77.26.  In total, they bought over 3.17 million shares over those three days.  They now own over 10% of the company with a stake worth over $4.4 billion.

However, they had to have also acquired a ton of shares prior to that.  As the brand new issue of our Hedge Fund Wisdom newsletter flagged 10 days ago, Buffett requested confidential treatment with the SEC regarding one of his holdings for his Q2 13F filing.  PSX did not appear in his holdings list at that time so it looks like this could be the position he was requesting privacy on.

Back in the first quarter of this year, Buffett owned just 7.49 million PSX shares.  So basically between April 1st and August 28th, Berkshire ramped up its exposure to PSX in a big way.  Shares largely traded sideways over that timeframe, between $75 and $84.  During the recent market turmoil, however, they traded as low as $69.79.

Buffett has been busy lately, as he's also agreed to takeover Precision Castparts (PCP).

For more on Buffett's firm, be sure to also check out our analysis of Axalta Coating Systems (AXTA), another stock Berkshire bought in recent months.

Eminence Capital's Ricky Sandler on Wall Street Week: KORS, EBAY/PYPL, ZNGA, RGC & More

Ricky Sandler, founder of hedge fund Eminence Capital, was recently interviewed on Anthony Scaramucci's rebooted show Wall Street Week.

Eminence manages $6.5 billion now and has been running for 17 years.  Sandler focuses on "quality value," looking for quality businesses but trading at discount prices.  He likes the intersection of growth and value, focusing on a "growth at a reasonable price" approach.

He likes Michael Kors (KORS) and notes it was a momentum stock that experienced a deceleration and he thinks it's a terrific brand that has opportunity for international expansion, trading at under at 10x PE.

Sandler also touched on eBay (EBAY), which recently split off its payments arm PayPal (PYPL).  The standalone EBAY is now purely an online marketplace.  Sandler says PYPL trades about for 20x earnings when you back out the cash, and it has 20% growth "for as far as the eye can see."

The Eminence founder also talked about gaming plays Zynga (ZNGA), Activision (ATVI), Take Two Interactive (TTW), and Ubisoft (UBI.PA).

Eminence is also short Regal Cinemas (RGC).

We've highlighted some other portfolio activity from Eminence here.

Embedded below is the video of Ricky Sandler's Wall Street Week interview:

For more, be sure to check out Mario Gabelli's interview on Wall Street Week from last week too.

Stockbridge Partners Increases Advanced Drainage Systems Stake

Stockbridge Partners has filed a 13G with the SEC regarding shares of Advanced Drainage Systems (WMS).  Per the filing, Stockbridge now owns 6.9% of the company with over 3.66 million shares.

This is up from the 2.86 million shares they owned at the end of the second quarter.  The filing was made due to activity on August 18th.

Some of their other holdings include Transdigm (TDG), Markwest Energy (MWE), Charter Communications (CHTR), LPL Financial (LPLA), Wabco (WBC), among others.

About Stockbridge Partners

This is the first time we've featured Stockbridge.  It's part of the Berkshire Partners umbrella, a private equity firm.  Per their website, Stockbridge takes "positions in public securities with a bias toward being long-term investors, focusing on high quality companies that exhibit earnings sustainability and growth.  We accept short-term volatility - and in many cases, view price fluctuations more as opportunities than as risks."  It was launched in 2007 and manages over $2 billion with Robert Small directing the group.

About Advanced Drainage Systems

Per Google Finance, Advanced Drainage Systems is "a designer, manufacturer and marketer of high performance thermoplastic corrugated pipe and related water management products, primarily in North and South America and Europe. The Company is managed based primarily on the geographies in which it operates and reports results of operations in two reportable segments Domestic and International. The Company’s products are used across a range of end markets and applications, including non-residential, residential, agriculture and infrastructure applications. The Company’s product line includes corrugated high density polyethylene (HDPE) pipe, polypropylene (PP) pipe and related water management products."