Columbia Business School Graham & Doddsville Newsletter: Interview With JANA Partners

The Winter 2013 issue of Columbia Business School's Graham & Doddsville is out and it features interviews with JANA Partners' Barry Rosenstein and Scott Ostfeld, where they talked about their investment style.

Also featured in the newsletter:

Daniel Krueger of Owl Creek gives an intriguing interview on investment process and pitches Leap Wireless (LEAP).

Frank Martin of Martin Capital Management on his top-down approach and the importance of limiting losses.  He also has two books, Speculative Contagion and A Decade of Delusions. 

Russell Glass of RDG Capital on his private equity oriented style and the influence of Carl Icahn.

Jon Friedland of Amici Capital on how he finds investment ideas.



Highlights From JANA Partners' Interview

On important lessons Rosenstein's learned:  "But from Asher (Edelman), I probably learned more important skills.  These had more to do with taking risks while not blinking and remaining fearless.  I give him a lot of credit.  He wasn't the most technically savvy guy, but he had great instincts and he never showed fear, even if he felt it at times.  That was important lesson."

After experience in private equity, Rosenstein founded his hedge fund and his first investor was Lee Cooperman (of Omega Advisors).  JANA started with $17 million and by 2007 it had over $8 billion under management.


On how activist investing impacts portfolio construction:  "Our highest conviction ideas are the ideas where we have the most impact on the outcome. Those are our activist ideas which tend to be our largest and highest returning posi- tions in the portfolio. You’re also, frankly, doing a lot of work on these posi- tions, so you want to bene- fit from that work by mak- ing it a large position. So our portfolio can be a bit more concentrated."


On JANA's approach:  "In our approach, we're extremely disciplined. I don't want to be only an activist because then you force things and the quality of your ideas is diluted. We don't ever have to be an activist here. We can just invest in event-driven situa- tions. For something to be an activist play, all of the criteria have to be present for us. We came up with this rubric we call V-cubed, which is Value, Votes, and Variety of ways to win. Basically, we have to be comfortable buying in at a valuation that provides us with a margin of safety, irre- spective of any activism we will attempt to initiate and that may be unsuccessful. We have to be comfortable that if it really came down to a vote that we would have shareholder support. And variety of ways to win – you want to make sure that there's more than one lever you can pull in case circumstances change.  In my experience, if you have all three of those checked off, you're guaranteed victory.  If you're missing one of them, there's a good chance you're going to lose.  We're extremely judicious."


On mistakes Rosenstein's learned from: "I’ve made so many mistakes I can't even think about it. I'll give you one thing that's not an investing concept, but something that I've come to realize that might be helpful. Being po- lite to people and treating people with respect is good business. It's not just a good thing to do, it actually inures to your benefit as well."


Advice from Ostfeld:  "A hypothetical 'A' in the investing world, the point at which you are performing at the highest level, only requires being right more than half the time. The truth is investing can be very frustrating, diffi- cult, unpredictable, and gru- eling. So you should only pursue the career if you have the passion, if you’re intellectually curious, and if you’re committed to it, be- cause at every turn, you can be very quickly humbled. That’s the nature of the business."


Embedded below is the Winter 2013 issue of Columbia Business School's Graham & Doddsville newsletter:




For past worthwhile interviews from the newsletter, we posted up Joel Greenblatt's interview in Graham & Doddsville as well as interviews with Jim Chanos and Julian Robertson.

Jeffrey Altman's Owl Creek Raises Visteon Stake (VC)

Jeffrey Altman's hedge fund firm Owl Creek Asset Management recently filed a 13G with the SEC regarding shares of Visteon (VC).  Per the filing, Owl Creek has disclosed a 5.57% ownership stake in VC with 2,933,100 shares.

This marks a 27% increase in their position size since the end of the second quarter.  Visteon emerged from bankruptcy two years ago and they recently sold their automotive lighting business.

Numerous other hedge funds and private equity firms continue to hold stakes including the likes of JANA Partners, Centerbridge Partners, SAC Capital, Monarch Alternative Capital, Ascend Capital, and Tremblant Capital, among many others.

Per Google Finance, Visteon is "a global supplier of climate, electronics, interiors and lighting systems, modules and components to global automotive original equipment manufacturers (OEMs). The Company operates in five segments: Climate, Electronics, Interiors, Lighting and Services."

Jeffrey Altman's Owl Creek Boosts Cigna Position

Jeffrey Altman's hedge fund Owl Creek Asset Management filed a 13G with the SEC on their position in Cigna (CI). Due to portfolio activity on October 27th, Owl Creek has disclosed a 5.14% ownership stake in Cigna with 13,896,771 shares.

This is an increase of almost 66% in their position size. At the close of the second quarter, they only owned 8,396,087 CI shares.

Owl Creek Asset Management also recently disclosed a new position in Lone Pine Resources (LPR). They acquired this position via their stake in Forest Oil (FST) which distributed a special dividend of LPR shares to FST shareholders.

In other portfolio updates from this hedge fund, we've also detailed how Owl Creek has been active in YRC Worldwide (YRCW).

Per Google Finance, Cigna is "a global health service organization with subsidiaries that are providers of medical, dental, disability, life and accident insurance and related products and services. In the United States, these products and services are offered through employers and other groups and in selected international markets, CIGNA offers supplemental health, life and accident insurance products, expatriate benefits and international health care coverage and services to businesses, governmental and non-governmental organizations and individuals."

Owl Creek & Cyrus Capital Active in YRC Worldwide (YRCW)

Hedge funds have been active in shares of YRC Worldwide (YRCW) recently. Jeffrey Altman's hedge fund Owl Creek Asset Management and Stephen Freidheim's Cyrus Capital Partners recently filed various forms with the SEC regarding the company. There are a lot of moving parts to their positions, so let's dig in.

Owl Creek Asset Management's Position

The 13G shows the latest activity as of September 16th and reveals Owl Creek has a 17.4% ownership stake in YRC Worldwide. This is based on 75,011,292 shares of common stock, 218,570,388 shares of common stock issuable upon conversion of Series B notes ($13,507,650 in aggregate principal amount), and finally 94,284,663 shares of common stock issuable either as make-whole shares or upon conversion of the PIK notes.

Digging into the footnotes, we see that Altman's hedge fund holds $17,573,269 in aggregate principal amount of 10% Series A Notes. These notes are not convertible until July 22, 2013 and the current conversion price is $0.1134.

Their Form 4 filed with the SEC shows they sold common stock in YRCW in the latter half of September, reducing their position from 110.5 million shares down to the current 75 million shares. The majority of their sales came at $0.07x.

For all the particulars of Owl Creek's position in YRCW, head to their 13G here. We also recently detailed how Altman's firm started a position in Forest Oil (FST).


Cyrus Capital Partners' Position

Stephen Freidheim's hedge fund Cyrus Capital actually filed an activist 13D on the company compared to Owl Creek's passive 13G. Cyrus revealed a 20.3% ownership stake in YRCW with 447,860,113 shares. This includes 289,738,036 shares of common stock issuable upon exercise of the Series B notes. For all the fine print of Cyrus' filing, head here.


YRC's Reorganization

YRCW is currently trading around $0.059 and underwent a charter amendment merger on September 16th, "whereby a wholly-owned subsidiary of the Issuer merged into the Issuer and the certificate of incorporation of the Issuer was amended and restated to increase the number of common stock authorized."

Due to this, the above hedge funds' preferred stock automatically converted into common stock and the Series A notes became convertible two years from the date of issuance (as detailed above). The Series B notes became immediately convertible at a fixed price into shares of common stock.

The company recently announced that Jeff Rogers will be YRC President and Mike Naatz will be Holland President, both reporting to YRC Worldwide CEO James Welch. Some analysts, though, haven't ruled out a bankruptcy filing for the trucking company.

Per Google Finance, YRC Worldwide is "a holding company. YRC Worldwide, through wholly owned operating subsidiaries offers its customers a range of transportation services. These services include global, national and regional transportation, as well as logistics."

Jeffrey Altman's Owl Creek Starts Forest Oil (FST) Stake

Jeffrey Altman's hedge fund firm Owl Creek Asset Management recently filed a 13G with the SEC disclosing a position in Forest Oil (FST). Per trading activity on September 6th, Owl Creek has revealed a 5.04% ownership stake in FST with 5,760,829 shares.

This is a brand new position for the hedge fund as they did not own a stake at the end of the second quarter. Forest Oil recently announced a special dividend to investors of 70 million shares of Lone Pine Resources (LPR) that are owned by Forest.

The distribution will be made on September 30th for shareholders on record as of September 16th. For every one share of FST owned, shareholders will receive 0.612 of a share of Lone Pine common stock.

Per Google Finance, Forest Oil is "an independent oil and gas company engaged in the acquisition, exploration, development, and production of oil, natural gas, and natural gas liquids in North America."

Back in 2010 we also detailed Altman's appearance on a hedge fund panel where he talked about how his firm had tail hedges via S&P puts and CDS because they were worried that the government wouldn't be able to do much in the event of another economic problem since rates were already at 0%. Though the recent volatility hasn't been as drastic as 2008, that was still prescient hedging.