What We're Reading ~ 11/16/17

15 questions to ask management teams [Clear Eyes Investing]

Jim Chanos betting against dialysis companies [Reuters]

A handful of value managers hoard cash as stocks surge [Bloomberg]

How the right decisions and compounding can lead to huge results [Of Dollars and Data]

The nature of underperformance and why it pays to wait [Of Dollars and Data]

CenturyLink / Level 3 merger: 1+1 = 1/2 ? [Peridot Capitalist]

America's 'retail apocalypse' is really just beginning [Bloomberg]

Withdrawal symptoms: cash is still king in India [SCMP]

How India is moving toward a digital-first economy [HBR]

Byron Wien measures China's tech success [Barrons]

In-depth interview with Shake Shack's Danny Meyer [CBS]

America's coffee market is getting too crowded [WSJ]

Who is investing in e-sports startups? [VentureBeat]

A look at Entercom: CBS Radio Reverse Morris Trust [Clark Street Value]

Corvex Management Increases CenturyLink Position

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its stake in CenturyLink (CTL).  Per the filing, Corvex now owns 6.6% of the company with 36.54 million shares. 

They've increased their stake recently by acquiring a net of 550,000 shares of common stock on August 3rd and 17th, while also acquiring 5 million shares underlying call options.

At the end of the second quarter, Corvex only owned 18.99 million shares, so they've clearly been out accumulating more exposure in recent months. 

CenturyLink is Corvex's largest position.  Their total CTL stake is comprised of 19.58 million shares of common stock and 17 million shares underlying call options.  Of the calls, 4 million of those shares have an exercise price of $28 and expiration of October 20, 2017.  Another 8 million of those have a strike of $30 and same expiration date, while another 5 million are in January 2018 $23 calls. 

We've also highlighted previous portfolio activity from Corvex here.

Per Google Finance, CenturyLink is "n integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. Its segments include business, which provides strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers, and consumer, which provides strategic and legacy products and services to residential customers. Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services. As of December 31, 2016, it served approximately 5.9 million broadband subscribers and 325,000 Prism TV subscribers."

Corvex Management Ups CenturyLink Stake

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its position in CenturyLink (CTL).  Per the filing, Corvex now owns 5.6% of CTL with over 30.99 million shares.  This is made up of 18.99 million shares and 12 million shares underlying call options.

This is an increase of around 1 million shares from the beginning of May when Corvex first revealed its stake in CTL.  The latest filing was made due to activity on June 16th and it notes they bought CTL at $25.91.

We previously highlighted Meister's presentation on CenturyLink at the Sohn Conference New York.  CenturyLink is merging with Level 3, which Meister thinks is a game changer.

Per Google Finance, CenturyLink is "an integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. Its segments include business, which provides strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers, and consumer, which provides strategic and legacy products and services to residential customers. Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services. As of December 31, 2016, it served approximately 5.9 million broadband subscribers and 325,000 Prism TV subscribers."

Notes From Invest For Kids Chicago 2014: Ackman, Zell, Robbins & More

The sixth annual Invest For Kids Chicago just took place and featured hedge fund managers sharing their latest investment ideas to benefit local children's charities (100% of the money raised goes directly to the charities).  Below are links to notes from each speaker's presentation.  Enjoy!


Invest For Kids Chicago 2014 Notes

- Fireside Chat with Bill Ackman (Pershing Square)

- Larry Robbins (Glenview Capital): 4 long ideas

- Sam Zell's Fireside Chat 

- Mason Hawkins (Southeastern Asset Management): long Level 3 Communications 

- Wally Weitz (Weitz Investment Management): long Liberty Media

- Steve Kuhn (Pine River Capital): On Japan

- Nehal Chopra (Tiger Ratan Capital): long Actavis and Charter Communications

- Jonathan Kolatch (Redwood Capital): Puerto Rico Power Authority

- Mike Wilkins (Kingsford Capital): On Short Selling

- Emerging Managers: Nancy Prial (Essex) long iCAD

- Emerging Managers: Tim Hurd (Blue Spruce) long BlackRock 

Mason Hawkins Long Level 3 Communications: Invest For Kids Chicago

We're posting up notes from Invest For Kids Chicago 2014.  Next up is Mason Hawkins of Southeastern Asset Management who pitched long Level 3 Communications (LVLT).


Mason Hawkins' Invest For Kids Chicago Presentation

•    Founded 1975, 40 years ago. $35 billion AUM
•    Run the Longleaf Partner Funds with a long term value orientation.
•    Purchase companies at deep discounts to intrinsic value, under three appraisal methodologies (NAV, FCF, private market comps). Generally engaged with the investees and boards in order to build IV per share. They are not passive investors.
•    “Business, People, Price” is their operating method.

Idea: Level 3 Communications (LVLT) 

•    Global telecom company which provides infrastructure to connect consumers and businesses onto the internet.
•    One of the largest fiber networks with a reproduction value in excess of $45B.
•    Rapidly growing FCF per share with modest additional capex as demand for broadband triples over next five years.
•    118K intercity route miles, 60K metro route miles in 170 major metro markets, 33K sub-seas miles. 38K buildings on market. 400K enterprise businesses within 500 ft of fiber network.
•    Large salesforce and 10 billion in NOLs which should shield pre-tax profits.
•    Street is overlooking the NOLs and extra assets overlooking after-tax FCF.
•    Have a low single digit market share but offer the most comprehensive portfolio of secure, managed network based enterprise solutions should allow for faster growth than the competition.
•    Most compelling investment due to the critical nature of their service offerings, and the fact that large customers in growing industries rely on the company. It’s the backbone.
•    CEO focused on building intrinsic value. Transformed from long-haul into an enterprise solutions company.
•    Since Jeff Storey took over as CEO, gross margins, EBITDA, FCF and other metrics have increased. Making attractive acquisitions such as Tw Telecom.
•    Share price increased 116% vs S&P at 31%.
•    Two long-term shareholders: Southeastern (17%) and Temasek (17%).
•    Significant enterprise revenue growth in conjunction with operating/financial leverage will lead to dramatic FCF growth.
•    Mid to single rev growth will lead to 60% EBITDA contribution margins.
•    Maintenance CapEx is ~12% of revenues. NOLs offset cash taxes until 2021.
•    FCF should triple from $2 per share to $6 over the next 5 years.
•    DCF leads to a $61 per share value or $21.5B of value. Excludes the value of non-earning assets such as dark fiber and 10 empty conduits. These are extremely valuable as well. Dark fiber worth “billions”.
•    Historical Gross PP&E w/ Tw Telecom worth over $45B.
•    Timing? Now as they think growing shortage of broadband capacity and upside from non-earning assets should lead to FCF growth.
•    Benefit from shift to cloud.
•    Routes the most valuable commodity: information.


Be sure to check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

Keith Meister's Corvex Files 13D on Time Warner Telecom (TWTC)

Keith Meister's hedge fund firm Corvex Management filed an activist 13D with the SEC today regarding their new position in Time Warner Telecom (TWTC).  Per the filing, Corvex has revealed a 5.77% ownership stake with 8,669,424 shares.


Activist Position

Under the "purpose of transaction" section, Meister outlined his activist intentions as follows:

"(Corvex has) had multiple conversations and meetings with the management of the Issuer to discuss the Issuer’s business and strategies and will seek to have additional conversations with one or more of management, the board, other stockholders of the Issuer and other persons to discuss the Issuer’s business, strategies and other matters related to the Issuer. These discussions have reviewed, and may continue to review, options for enhancing shareholder value through various strategic alternatives including, but not limited to, improving capital structure and/or capital allocation through increased leverage and stock repurchases or dividends, among other actions, M&A, and general corporate strategies."


Breakdown of Corvex's Position

According to the fine print in the filing, Corvex was out buying TWTC common stock as early as September 13th and then added to the position sporadically throughout November, December and January.

The majority of trades, however, are via the purchase of call options in January, February, and March and the sale of put options during the same timeframe.  Corvex bought calls and sold puts both with an $18 strike and February 24, 2014 expiration.

In total, Corvex owns 2,294,924 shares and 6,384,500 shares via underlying call options.


Corvex's Thesis on TWTC

Meister outlined the thesis on TWTC in his Ira Sohn talk this week and thinks the company could be acquired.  Meister likes companies going through change and recurring revenue businesses with possible secular growth.  The main thesis here seems to be tied to the fact that the data network industry has been consolidating.  He also owns shares of Level 3 Communications (LVLT) and looks for them to be an acquirer in the space.


About Time Warner Telecom

Per Google Finance, TWTC is "a national provider of managed network services, specializing in business Ethernet, data networking, Converged, Internet protocol-based virtual private network (IP VPN), Internet access, voice, including voice over Internet Protocol (VoIP), and network security services to enterprise organizations, including public sector entities, and carriers throughout the United States, including their global locations."

You can also see some additional portfolio activity from Corvex here.

Notes From Ira Sohn Conference 2013: Einhorn, Druckenmiller, Eisman & More

Today we present notes from the 2013 Ira Sohn Conference in New York.  The 18th annual event featured top hedge fund managers presenting investment ideas and the proceeds from the event benefit pediatric cancer research and treatment via the Sohn Conference Foundation.  Summaries of each speaker's talk are linked below.


Notes From Ira Sohn Conference 2013

Stanley Druckenmiller (Druckenmiller Family Office) on commodities, short Australian Dollar

David Einhorn (Greenlight Capital) on Oil States International (OIS)

Steve Eisman (Emrys Partners) on housing plays: OCN, LEN, PHM, FBHS, FOR, CLNY, AMWD

Paul Singer (Elliott Management): a financial overview & history of markets

Jim Chanos (Kynikos Associates): short disk drive makers Seagate & Western Digital

Kyle Bass (Hayman Capital) on Dex Media (DXM) and Japan

Bill Ackman (Pershing Square): long Procter & Gamble (PG)

Jeffrey Gundlach (DoubleLine) on quantitative easing, short French bonds, short Chipotle

Jonathon Jacobson (Highfields Capital): Short Digital Realty Trust (DLR)

Mitchell Julis (Canyon Partners) on Clear Channel Outdoor (CCO) & Apple (AAPL)

Keith Meister (Corvex Management): long Time Warner Telecom (TWTC) & Level 3 (LVLT)

David Stemerman (Conatus Capital): short African Bank (ABL:SJ)

Li Lu (Himalaya Capital) on Korean preferreds (Samsung, Hyundai)

Clifton Robbins (Blue Harbour Group) on CACI & Akamai

Tor Olav Troim (Seadrill) on opportunities in cyclical industries

Simeon McMillan (Columbia MBA, investment contest winner) on Tribune Company

Keith Meister's Sohn Conference Presentation on Time Warner Telecom & Level 3 Communications

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Keith Meister of Corvex Management (he previously worked with Carl Icahn).  He presented Time Warner Telecom (TWTC) and Level 3 Communications (LVLT) as he likes plays on the data boom.


Long: Time Warner Telecom (TWTC)

Has his own fund, used to work for Carl Icahn. Buys companies going through change, activism. Likes recurring revenue businesses, with secular growth even in no-growth world, consolidating industries. Global data traffic over networks is indisputable, no matter which tablet/ smartphone/game is popular. Networks are consolidating. Ideas: Long TWTC. 80% enterprise/20% wholesale. Possible takeover target. Growing, market share gainer, balance sheet optionality for capital return. Steady organic growth, declining monthly churn. Potential acquirers: Comcast (CMCSA), Verizon (VZ), AT&T (T), Level 3 Communications (LVLT), Cablevision (CVC), Charter Communications (CHTR), or maybe even Google (GOOG). Price target: $34. Meister said he will file a 13D on TWTC as he owns 6% of the company and thinks this is a takeover target.


Long: Level 3 Communications (LVLT)

Long idea: LVLT. 55% ent/45% wholesale. Acquirer of other companies. Scale asset, real estate play, and $8.5B NOLs. It's like Sprint last year- as people begin to believe the story, the stock will work. Expects TWTC to be acquired. Both about $4-5B market cap. Trade at 7-8x EBITDA, which is growing 10% CAGR. LVLT 5.3x debt/EBITDA, TWTC only 1.5x. LVLT 1.5 beta, TWTC 0.8x. LVLT is a global roll-up; TWTC is in 75 local markets.  His firm owns over 3% of LVLT.

For more on this manager, head to posts on Corvex's position in CommonWealth REIT, as well as Keith Meister's pitch on ADT.


Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.

John Griffin's Blue Ridge Loads Up on Level 3 Communications (LVLT)

John Griffin's hedge fund Blue Ridge Capital has filed a 13G with the SEC on shares of Level 3 Communications (LVLT). Due to portfolio activity on May 13th, Blue Ridge has disclosed a 5.74% ownership stake in LVLT with 97,805,000 shares.

This marks a whopping 434% increase in their position size. Griffin's firm owned 18,305,000 shares back on March 31st, so the recent addition took place somewhere within the past two months. We've just detailed the rest of Blue Ridge's updated portfolio in the new issue of our newsletter: Hedge Fund Wisdom.

Per Google Finance, Level 3 Communications is "is engaged in the communications business. The Company is a facilities based provider of a range of integrated communications services."

To learn to invest like Griffin, check out Blue Ridge's recommended reading lists.