Notes From Invest For Kids Chicago: Lasry, Perry, Cooperman, Zell & More

Yesterday at Invest For Kids Chicago, numerous high profile hedge fund managers shared their latest investment ideas. The event had 800 attendees and raised $1.1 million (100% of the proceeds went to charities benefiting children). Please click the links below to view notes on each speaker's presentation:


Invest For Kids Chicago Notes:


Marc Lasry (Avenue Capital): Long General Motors & Hovnanian Bonds


Richard Perry (Perry Capital): GSE Junior Preferred Securities & RBS Tier 1 Securities


Leon Cooperman (Omega Advisors): Charming Shoppes (CHRS), KKR Financial (KFN), E*Trade Financial (ETFC)


Sam Zell (Equity Group Investments): Brazil's Investment Opportunity


Barry Rosenstein (JANA Partners): long McGraw Hill (MHP)


Thomas Russo (Gardner Russo & Gardner): Look abroad for opportunities, Nestle


Michael Milken (Milken Institute): Thoughts on Capital Markets


John Keeley (Keeley Asset Management): ITT Corp (ITT)


Barry Sternlicht (Starwood Capital Group): Likes Lowe's, Toll Brothers, NVR


Michael Elrad (GEM Realty Capital): Long Macerich (MAC)



For more of our coverage of the latest investment conferences, be sure to also head to notes & presentations from the Value Investing Congress.

Barry Rosenstein: Long McGraw-Hill (MHP) ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Barry Rosenstein of JANA Partners gave a presentation on going long McGraw-Hill (MHP).

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Long McGraw-Hill (MHP)

Rosenstein is a private equity style investor in public markets and he likes finding undervalued companies. He compares MHP to the classic 1980's style "sleepy business." The ratings segment sees $800 million of EBIT and has moat and pricing power. The financial services, Capital IQ and Ratings Direct segment has $175 million EBIT, while educational business segment has $300 million of EBIT.

He focused on the company's capital allocation as the educational business is more capital intensive but has a lower return on invested capital and garners the lowest multiple. He says the company has starved this business so they've lost market share.

He dislikes the bloated conglomerate structure and partnered with the Ontario Teachers' Pension Plan to go activist on MHP. Not surprisingly, the company is spinning out its education business and accelerating stock buybacks.

We've also previously detailed Rosenstein's slideshow presentation on MHP on why the company should split up. He says the company's cost cuts should be $200 million rather than $100 million and buyback $1 billion in 2011 and 2012 (15% of total shares).

The risk he pointed out was litigation issues of the ratings business and he said only a small fraction of claims are making it into court as the courts denied class action status to claims. He sees 40% upside to today's price.

You can view full notes from Invest For Kids Chicago here.

JANA Partners' Presentation on McGraw-Hill (MHP): Reasons to Split Up the Company

Earlier today we posted up about hedge fund JANA Partners' activist push against McGraw-Hill (MHP). Barry Rosenstein's hedge fund (along with the Ontario Teachers' Pension Plan) owns 5.6% of the company and is pushing for MHP to split up into four separate entities.

JANA just met with the company on Monday (August 22nd) to present their case. Here's the hedge fund's rationale for splitting up MHP:

"
- MHP's conglomerate structure acts as a significant constraint on each of its businesses, hampering operational performance, strategic flexibility in allocating capital and share price valuation

- MHP has much more meaningful and beneficial opportunities to improve operating performance and clarify the underlying value of its assets than the actions taken to date (such as seeking to sell broadcasting, which accounts for only ~2% of total EBIT)

- A wide ranging, transformative and comprehensive resolution of the corporate structure and cost structure is essential for MHP to improve operating performance and shareholder return

- Separating MH Education, Information & Media and the S&P Index business would position these businesses to improve performance and participate in consolidation, thus unlocking value

- Collapsing MHP's corporate cost structure and eliminating duplicative overhead costs would enhance this value creation

- Accelerated share buybacks would multiply the value creation impact of these changes

- Bolstering S&P Ratings with an independent oversight figure would help the business navigate an increasingly complex global regulatory environment and heightened public focus

- The real question is why would MHP not promptly take these steps to improve operating performance and unlock shareholder value?
"

JANA's recent slideshow presentation to the company is embedded below (email readers need to come to the site to view it):



In response to JANA's presentation, McGraw-Hill issued a statement that their review of the company's options for splitting up is "well advanced and expected to result in significant actions in the next few months to accelerate global growth, align appropriate cost structures and build shareholder value."

The question is whether McGraw-Hill opts for the more aggressive four-pronged break-up or if they are eyeing the smaller split up as they are said to be considering.

JANA Partners Pushes For McGraw-Hill (MHP) Split Up

Ah, the smell of activist investors in the morning. Barry Rosenstein's hedge fund JANA Partners recently filed an amended 13D with the SEC in conjunction with the Ontario Teachers' Pension Plan regarding shares of McGraw-Hill (MHP). The activist investment disclosure revealed that they now own 5.6% of the company.

They originally disclosed the stake earlier this month and have since bought over 1 million more shares. While JANA also focuses on event-driven investments, they're well known for making activist pushes to generate change in companies they invest in.

JANA's Split Up Plan

The hedge fund wants McGraw-Hill to split up into four entities: Standard & Poor's ratings agency, the indexing business of S&P, the information & media business, and the education unit.

It seems that this is a much more detailed and ambitious plan compared to what MHP was considering. The company was looking into divesting its educational publishing business and its broadcasting unit.

So why is JANA interested in MHP in the first place? In their filing, they write, "(MHP) has consistently underperformed its potential and traded at a sizable discount." So as always, the hedge fund wants to make money on their investment and think a split-up/spin-off is the ideal way to generate shareholder value.

The only potential 'hurdle' going forward (if you want to call it that), is that McGraw-Hill is largely a family business, though Mr. McGraw owns only around 4% of the company. It will be interesting to follow the activist saga unfold.

In recent portfolio disclosures, JANA has 24% of its reported US equity long investments allocated to one stock. Find out which one it is and see the rest of 25 hedge fund portfolios in the brand new issue of our premium newsletter.

Update: We've also posted JANA's presentation on McGraw-Hill.