David Gallo's Valinor Management Increases Clearwater Paper (CLW) Position

David Gallo's hedge fund firm Valinor Management recently added to its position in Clearwater Paper (CLW). Due to portfolio activity on February 24th, Valinor now shows a 5.1% ownership stake in CLW with 581,380 shares.

This is a slight increase in their holdings as they owned 505,106 shares at the end of 2010. As such, they've boosted their position size by 15%. We've detailed some of Valinor's other portfolio activity as well.

In general, the paper and packaging industry has garnered increased interest from hedge funds as of late. Dan Loeb's hedge fund Third Point explained why in a recent letter, citing four factors for the industry's upheaval:

"1. The expiration of the (black liquor) tax credit caused the closure of many marginal paper plants and led to much higher paper pricing for the survivors in 2010-11.

2. Paper can only be recycled only a limited number of times before the fiber wears out, further increasing OCC (recycled paper) pricing.

3. Softwood pulp producers or those who are vertically integrated with their own softwood pulp enjoy a substantial cost advantage.

4. The combination of industry consolidation and capacity reduction has led to many paper grades currently running at +90% utilization, a level that gives them the flexibility to raise prices."


Be sure to read Third Point's full rationale on the paper industry. Hedge funds have also been active in Smurfit-Stone (SSCC) as the paper company received a takeover offer, as well as Abitibibowater (ABH), another paper company that just emerged from bankruptcy.

Per Google Finance, Clearwater Paper is "a producer of tissue and paperboard products in the United States. The Company’s products are manufactured in the United States and utilize primarily wood pulp. The Company operates in three segments: Consumer Products, Pulp and Paperboard, and Wood Products."

Dan Loeb Concerned About Consensus Bullish View: Third Point's Year-End Letter

Dan Loeb's hedge fund Third Point is out with its 2010 year-end letter to investors and the most notable aspect of it is that Dan Loeb will no longer be authoring the letter going forward. He is doing so "in order to keep our views proprietary and maximize time spent on investing."

2011 Outlook

Third Point expects a continued global recovery, high commodity prices, and an increase in mergers and acquisitions activity (M&A). However, Loeb is cautious about one thing, writing, "Our greatest concern is the growing consensus around the bullish view we have held since April 2009. Therefore, we welcome sharp corrections like the two we had last month."

Focus on Paper Companies

We've highlighted how Third Point likes post-reorganization equities. While they own chemical company Lyondell Basel (LYB), the hedge fund also has exposure to various paper industry plays. Third Point's letter reveals that they initiated a new position in NewPage in the fourth quarter ("a performing credit under distressed pressure").

Loeb also reveals that he owns a position in Bowater, otherwise known as AbitibiBowater (ABH), a company that just emerged from bankruptcy and will soon also be classified as a post-reorganization equity.

Third Point also details their position in Smurfit-Stone Container (SSCC) and we've highlighted how hedge funds are active in SSCC and oppose the proposed takeover. Further rationale behind Third Point's interest in the paper industry is outlined in their 2010 year-end letter to investors, embedded below:



You can download a .pdf copy here.

For more on Loeb's hedge fund, we also just detailed Third Point's latest positioning & exposure levels.

Dan Loeb & Third Point's Latest Positioning & Exposure

Dan Loeb's Third Point Offshore Fund recently released its January performance and the fund was up 3.9% for the month compared to a 2.4% return in the S&P 500. To date, Third Point has seen 18.9% annualized returns with a low correlation to the market (0.42).

Equity Exposure

In equities, Loeb's hedge fund has its highest net long exposure in basic materials at 16.4% net long. Their second highest exposure comes with a 12.9% net long position in the consumer sector. In total, Third Point is 68.9% long and -7.9% short, leaving the fund 61% net long.

Credit Exposure

Loeb is 31.1% net long credit with his largest exposure in mortgage backed securities (MBS) at 19.3% net long. He is also 12.3% net long distressed and -10.1% short Government bonds.


Top Positions

As of the end of January, Third Point's top positions remain unchanged from previous months:

1. Gold (physical)
2. Delphi (multiple securities held)
3. Chrysler (multiple securities held)
4. Potash (POT)
5. Lyondell Basell (LYB)


Top Winners & Losers

Third Point's portfolio attributed positive performance in the month to shares of Potash (POT), Smurfit-Stone Container (SSCC), Massey Energy (MEE), NXP Semiconductor (NXPI), and Aveta. We recently highlighted how Third Point opposes SSCC's takeover and other hedge funds have been active in the name as well. SSCC is one of the many post-reorganization equities found in Loeb's portfolio. Last year we cited how Third Point likes post-reorg equities and just recently we noted that John Paulson likes them too.

Regarding his position in NXP Semiconductor, Loeb highlighted NXPI in a recent letter. The company is involved in near field communications and is seen as a prime play on mobile payments. Third Point also saw solid performance from its position in Massey Energy as the company received a takeover offer from Alpha Natural Resources (ANR).

Positions that negatively affected Third Point's portfolio last month include Gold, Brenntag AG (ETR:BNR), Mead Johnson Nutrition (MJN), African Barrick Gold (LON: ABG), and Accuride (ACW).

To learn to invest like this hedge fund manager, check out Dan Loeb's recommended reading list.

Hedge Funds Active in Smurfit-Stone Container (SSCC)

Dan Loeb's hedge fund Third Point LLC and Barry Rosenstein's JANA Partners have filed a 13D and 13G respectively on shares of Smurfit-Stone Container (SSCC). Smurfit-Stone recently received a takeover bid from Rock-Tenn (RKT) worth roughly $38 per share in a cash and stock deal. Late last week we detailed that a consortium of hedge funds opposed Smurfit-Stone's takeover.

Third Point

According to SEC filings, Third Point has disclosed a 2.46% ownership stake in SSCC with 2,250,000 shares as of their February 1st portfolio. Loeb's hedge fund has filed in cooperation with Royal Capital Management (who owns 3.04% of SSCC) and Monarch Alternative Capital (who owns 3.47% of SSCC). This consortium of hedge funds collectively oppose the takeover.

While these hedge funds received the majority of their shares in Smurfit-Stone's recent reorganization, they've also been buying shares in recent months. Third Point had purchased shares of SSCC on the open market throughout December 2010 and even bought 250,000 shares as recently as February 1st after the takeover was announced (at prices of $37.5680 and $37.7497).

In their SEC filing, Third Point argues that the $38 per share valuation is inferior. According to an attachment to Third Point's disclosure, "we wonder just what numbers Smurfit’s board was looking at when it approved the Merger? This is the critical question, because if Rock-Tenn had been willing to pay 6.1 times the more appropriate Adjusted EBITDA of $938 million, and if an appropriate value had been ascribed to the NOL, Smurfit’s shareholders would receive nearly $44.00 per share of Common Stock in the Merger."

They also highlight that, "precedent containerboard transactions over the last decade had a median TEV to EBITDA ratio of 7.7x." Such a valuation would make shares of SSCC worth more like $59 per share.

JANA Partners

In a separate 13G filed with the SEC, Barry Rosenstein's hedge fund JANA Partners has disclosed a 5.7% ownership stake in Smurfit-Stone Container (SSCC) with 5,230,591 shares per their portfolio as of January 26th, 2011. Back on September 30th, 2010, the hedge fund only owned 521,479 shares, so this is a whopping 903% increase in their position size. We recently detailed some of JANA's new positions as well for those interested. While JANA is an activist oriented firm, this filing marks a passive SSCC stake.

While it's speculation on our part, it seems that JANA potentially acquired their new shares after the Rock-Tenn (RKT) takeover deal was announced and saw SSCC shares as undervalued. Since JANA did not file an activist 13D, it's unclear if they oppose the current deal. We're inclined to assume they're likely to side with Third Point's consortium. Under this scenario, you'd essentially have 14.67% of SSCC shares owned by hedge funds that oppose the takeover.

For more specifics of this deal, head to the hedge funds' letter of opposition to the deal.

Third Point, Royal Capital, & Monarch Alternative Capital Oppose Smurfit-Stone Takeover

A group of hedge funds including Dan Loeb's Third Point, Royal Capital Management, and Monarch Alternative Capital recently penned a letter to Smurfit-Stone (SSCC) opposing the company's proposed acquisition by Rock-Tenn (RKT). The hedge funds collectively own 9% of SSCC and oppose Rock-Tenn's cash and stock bid that valued SSCC at $38 per share.

Smurfit-Stone recently emerged from bankruptcy and these funds received the majority of their shares through the restructuring process. The various hedge funds are pushing for shareholders to veto the deal. They feel the company can either do better as a standalone company or attract higher offers from Rock-Tenn or others in the packaging industry (such as Temple-Inland (TIN), Packaging Corp of America (PKG), International Paper (IP), MeadWestvaco (MWV), or KapStone Paper (KS)).

We'll have to see if their letter can shake things up and unlock further shareholder value in the stock. Embedded below courtesy of Dealbook is the hedge funds' letter to Smurfit-Stone (email readers visit the site to view it:



As we've detailed before, Third Point likes post-reorg equities and Smurfit-Stone is one of those positions. The hedge fund also has a sizable stake in recently re-listed Lyondell Basell (LYB). And just a few days ago, we highlighted how John Paulson likes restructured equities as well.