Highfields Capital Trims Silver Run Acquisition Stake

Jonathon Jacobson's hedge fund firm Highfields Capital has filed a Form 4 with the SEC regarding shares of Silver Run Acquisition Corp II (SRUN). 

Per the filing, Highfields sold over 3.24 million shares of SRUN on September 29th at a price of $10.17.  After this transaction, they were left with a position of over 8.25 million shares.

Silver Run Acquisition II is a private equity backed oil and gas play led by a former executive of Anadarko Petroleum.  Recently, in August, the company announced it was merging with Alta Mesa and Kingfisher Midstream to create a $3.8 billion company.

Dan Farb Long Franklin Resources: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Dan Farb of hedge fund Highfields Capital who pitched a long of Franklin Resources (BEN).


Dan Farb's Presentation at Capitalize For Kids Conference 2016

•    LONG Franklin Resources (BEN).  Has 2x the exposure to commodities and emerging markets relative to other asset managers.

•    An asset manager with $700 billion in assets.

•    Recently, stock and earnings have declined due to this exposure and currently trades at a discount.

•    Since 1987, has compounded capital over 16% per year (vs. 10% in S&P). Made two strong acquisitions, Templeton in early 90s and Mutual Shares in the mid-90s

•    Average U.S asset manager currently trades at 14x earnings, BEN trades at 12.7x earnings.

•    Expects AUM and fund performance to stabilize which should help grow earnings and potentially multiple expands.

•    Currently trades at $34/share but has $18/share in net cash and real estate (90% of cash is held offshore).

•    Johnson family owns 37% of the shares, aligning well with shareholders’ interests.


Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference. 

Jon Jacobson's Sohn Conference Presentation: Short Digital Realty Trust (DLR)

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Jonathon Jacobson of Highfields Capital.  He presented "The Illusion of Yield."  His pitched the short case on Digital Realty Trust (DLR).  


The Illusion of Yield

Jacobson said money market assets are in decline. Individual investors fled mutual funds, and slowly, but surely individuals are tiptoeing back to the market. They are buying high-yield bond funds and dividend stocks.

"Low risk" such as REITs, pharma/healthcare, Utilities, Telcos, even blue chips. He showed how health care is up 18% ytd, Utilities 18%, staples 16%. Very rare for this to happen in a bull market. This shows that investors are buying high dividend "safe" stocks. "All dividends are not created equal"

AT&T (T) beware: wireline a melting ice cube, wireless becoming competitive. Short: Linn Energy (LINE). Half of cash flow is from hedging gains.


Short Digital Realty Trust (DLR)

Short idea: Digital Realty Trust (DLR). $9B market cap, trades at 18x AFFO (adjusted funds from operations), 4.6% dividend yield. Fundamentals deteriorating, commodity business without barriers to entry.

CAPEX higher than company represents, dividend not sustainable. Stock worth about $20/share, not the $65 it's trading for. Cloud-based competition is coming in- Google (GOOG), Amazon.com (AMZN), and Microsoft (MSFT).

Rents at new data centers are down 20% since 2006. Spent $967M on CAPEX, claim only $22M of it was maintenance capex. This doesn't square. It's actually more like $413M/ year over time. So on $1B on revenue, cost of maintenance capex is more like 40%, not 2% This makes a huge difference- it implies they are only making 87c/share, not $3.12/share.

With a 4% yield on this 87c, you get a $19 stock. Replacement cost as estimated by the company is $18/share.  With no barriers to entry, increasing competition, prices dropping, why should you pay 3x book value for this business? Keep issuing secondary shares to fund ongoing operating cash shortfall, still doing acquisitions to mask what is happening.


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

Highfields Capital Discloses Liberty Ventures Stake

Jonathon Jacobson's hedge fund firm Highfields Capital just filed a 13G with the SEC regarding shares of Liberty Ventures (LVNTA).  Per the filing, Highfields now owns a 5.8% ownership stake in LVNTA with 1,482,738 shares.

This is a brand new position for the hedge fund and the filing was made due to portfolio activity on September 12th.  Liberty Ventures is a tracking stock that was created in August to track certain assets of Liberty Interactive (LINTA).

LVNTA shares track Liberty's ownership interests in various entities such Expedia, TripAdvisor, and many more companies.  Shares of LINTA, on the other hand, track the businesses of Liberty such as home shopping network QVC.  Shareholders of LINTA received LVNTA shares in the tracking stock separation.

Liberty Rights Offering

It's unclear if Highfields acquired some of their LVNTA shares via the LINTA spin or not.  Highfields did not disclose a LINTA stake at the end of Q2 in their most recent 13F filing, but they could have easily purchased shares before the split. 

This is important mainly because Highfields' trading activity date on their SEC filing matches the date of Liberty Ventures' rights offering commencement.  Yahoo Finance has an explanation of this:

"On August 9, 2012, in connection with the creation of its new Liberty Ventures tracking stock, Liberty Interactive distributed subscription rights to purchase share of Series A Liberty Ventures common stock (each, a Series A Right). Each whole Series A Right entitles its holder to subscribe, at a per share subscription price of $35.99, for one share of Series A Liberty Ventures common stock pursuant to a basic subscription privilege, and also entitles the holder to subscribe for additional shares of Series A Liberty Ventures common stock pursuant to an oversubscription privilege.  The rights offering will commence on Wednesday, September 12, 2012, and will expire at 5:00 p.m., New York City time, on Tuesday, October 9, 2012, unless extended by Liberty Interactive Corporation"

The rights offering commenced on September 12th and trades under symbol "LVNAR."  It will expire at 5pm EST on October 9th (unless extended by Liberty). 

We've previously covered other portfolio activity from Highfields here.

Highfields Capital Boosts Carter's (CRI) Stake, Shifts CoreLogic (CLGX) Stake to Passive Investment

Jonathon Jacobson's hedge fund firm Highfields Capital recently filed two 13G's with the SEC on Carter's (CRI) and CoreLogic (CLGX).

Carter's (CRI)

Per the filing, Highfields Capital has disclosed a 5.5% ownership stake in Carter's with 3,270,163 shares.  The filing was made due to portfolio activity on June 4th.

This marks almost an  85% increase in their position size in the name since the end of March. It also moves up Highfields as one of the top holders of the stock in addition to the likes of Viking Global and Matrix Capital.  Just a few months ago, we highlighted how Viking raised its stake in Carter's.

Per Google Finance, Carter's is "a branded marketer of apparel for babies and young children in the United States. The Company owns two brand names in the children’s apparel industry, Carter’s and OshKosh. Its Carter’s brand provides apparel for children sizes ranging from newborn to seven. OshKosh brand provides its line of apparel for children sizes newborn to 12. Its Carter’s, OshKosh, and related brands are sold to national department stores, chain and specialty stores and discount retailers."


CoreLogic (CLGX)

The second filing is a 13G from Highfields on CoreLogic indicates they have a 7.6% ownership stake in the company with 8,149,719.  This stake is unchanged from their last filing and the main reason they've filed is because their stake has shifted from an activist stake (with a previous 13D filing) to now a passive one (13G filing).

The hedge fund has withdrawn its nominees to the company's board after the company itself nominated three new directors and the chairman agreed to step down this year.  It appears as though the fund was mainly seeking members with more relevant business experience and it looks like they've achieved that.

Per Google Finance, CoreLogic is "a provider of property, financial and consumer information, analytics and services to mortgage originators and servicers, financial institutions and other businesses, government and government-sponsored enterprises. CoreLogic’s data, query, analytical and business outsourcing services help its customers to identify, manage and mitigate credit and interest rate risk. It offers its customers a databases of public, contributory and data covering real property and mortgage information, judgments and liens, parcel and geospatial data, national coverage eviction information, non-prime lending records, credit information, and tax information, among other data types."


About Highfields

Jacobson founded Highfields in 1998 after previously serving as the senior equity portfolio manager at Harvard Management Company. Highfields is an $11 billion value-oriented firm that doesn't want to swing at every pitch, but rather just the fat ones where they can hit home runs.  We've previously highlighted Jacobson's thoughts on whether there's alpha in asset allocation.


For more on this hedge fund, you can read Highfields' thesis on one of their top holdings: Sallie Mae here.