The Invest For Kids Chicago 2018 conference recently took place. It featured investment managers sharing their latest ideas to benefit underprivileged children in the Chicago area. Here's notes/summary of the event:
Notes From Invest For Kids Chicago 2018
Ken Griffin (Citadel Investment Group): Took down risk in August. Hasn't felt comfortable with lots of risk in about a decade. Says there's lots to worry about and October has obviously thus far been volatile, but this is where portfolio managers can shine. Sees lots of opportunity for Citadel in commodities. Says to hire great people then delegate.
Sam Zell (Equity Group Investments): Macro commentary, lots of uncertainty about next month's elections. Long cash, maybe gold? He thought we were in the 8th inning a few years ago, elections have since taken us into extra innings.
Christopher James (Partner Fund Management): Long Intuit (INTU). Known for its TurboTax and QuickBooks products, proprietary datasets are where the real value is. Big Data + Workfroce 2.0. New "One Intuit" ecosystem driving value as well. People trust the company, are opting into data sharing. INTU has underappreciated upside and is partnering well with a range of other fintech companies.
Mark Lampert (BVF Partners): Long Idorsia (IDIA-CH), spin-off from Actelion done in conjunction with Actelion's sale to Johnson & Johnson. Founders/owners of co are exemplary scientists and business operators. Invested $525 million into Idorsia, more open market purchases recently. Insider purchases stand out as among biggest in industry. Thesis is to co-invest with the Clozels, the founders.
Vivian Lau (One Tusk Investment Partners): Long Bombardier. Prior management made a ton of mistakes. Co has a strong backlog and good long-term demand.
Daniel O'Keefe (Artisan Partners): Long Dentsply (XRAY). Depressed earnings/multiple. Co is growing, has good margins and ROIC. Says dental spending is seeing secular, long-term growth. 180 million Americans are missing at least one tooth. XRAY historically trades low-to-mid 20's P/E but has recently been mid-to-low teens. They overpaid for Sirona, failed merger integration, and have had 4 CEO's in 3 years. Thinks margins should revert, sees FY19 op margin at 17-21%, EPS at $2.30 to $2.80, stock worth $41-71, currently trades $35.
John W. Rogers Jr. (Ariel Investments): Long Stericycle (SRCL), long Madison Square Garden (MSG), MSG Networks (MSGN). People will probably still want to watch live sports, they own very valuable sports rights in a world class city.
Vivien Azer (Cowen & Co): Long Canopy Growth (CGC/Weed). Says it's a once-in-a-career disruption and only a matter of time. Consumer packaged goods companies are getting into the sector. Target price: C$82.00, 30x sales in three years.
Jeremy Schiffman (Palestra Capital): Long Airbus. In the good part of the cycle, about to get even better. Higher margins to follow: op margins going to mid-teens in next three years. Worth 180 Euros per share in three years. Stock buyback is possible next year. 40,000 new aircraft deliveries worldwide in the next decade. FCF heading from under 3bn Euros to 8bn Euros. Short U.S. Trucking: (Wener, Knight-Swift, Heartland): good part of cycle right now but about to get a lot worse. 60 PMI likely to mean-revert to 50 or lower; if 40, short makes a lot of money.
Philip C. Ordway (Anabatic Investment Partners): Long Alaska Airlines (ALK). Advantages from cost structure, customer loyalty, and markets/routes. Attractive margins and returns on capital. Current valuation = very low expectations. Secret sauce is Alaska's credit cards: loyalty program generated ~$1 billion of CFFO in '17. Operating margins ~40-50% with zero capital required, membership growing 10-12% per year. Bank of America pays Alaska every month based on members' credit card usage. Co's integration of Virgin America almost complete, sees FCF >$2 bn in next 3 years. ALK 10% FCF yield, 9x P/E.
Constance Freedman (Moderne Ventures): Long Fujifilm. Venture capitalist looking to invest in old industries undergoing technological transformation. 3d printing, augmented reality, digital transactions are technologies applicable to many markets. Document solutions, healthcare, imagine segments all use disruptive technologies. Undervalued today relative to peers. Revenue and profit growth from healthcare and imaging. Sees 15x E 2018 EPS, 6% ROE
For more recent investment conference coverage, head to our summary of the Great Investors Best Ideas (GIBI) Dallas Conference.
Friday, October 26, 2018
Invest For Kids Chicago Conference Notes 2018: Griffin, Zell & More
Thursday, October 25, 2018
Sohn London Investment Conference 2018: Only a Month Away
The 7th annual Sohn London Investment Conference is only a month away. It will feature Europe's leading hedge fund managers sharing their latest investment ideas to benefit the Sohn Conference Foundation for the treatment and cure of paediatric cancer. If you're in the UK or Europe, this is always a great event to attend.
To learn more about the event and to register, head to: www.sohnconference.org/london
Sohn London 2018 Speakers List
Adrian Croxson, OZ Management
Per Lekander, Lansdowne Partners
Andrew Dickson, Albert Bridge Capital
Maxime Franzetti, Mubadala Capital
Bernie Ahkong, UBS O'Connor
Andy Brough, Schroder Investment Management
Dureka Carrasquillo, Canada Pension Plan Investment Board
Benoît Colas, PrimeStone Capital
Rachel Reutter, J O Hambro Capital Management
Vikram Kumar, Kuvari Partners
Luke Newman, Janus Henderson Global Investors
Professor Richard J. Gilbertson, Li Ka Shing Professor of Oncology, University of Cambridge
Conference Details
When: 29th November 2018
Where: London Marriott Hotel, Grosvenor Square, London W1K6JP, United Kingdom
Schedule: 11:30 Registration and lunch buffet, 12:30 Speakers, 13:45 Break and further refreshments, 14:30 Speakers and Idea Contest, 15:45 Break, 16:30 Speakers, 17:30 Networking drinks
This year also includes the inaugural Sohn Women's Brunch, which will bring together a number of the most senior women in finance.
You can register for the conference by clicking here.
Pershing Square Starts Hilton Stake Again
Bill Ackman's investment firm Pershing Square Capital Management today revealed that they've started a new position in Hilton (HLT). Pershing now owns a 3.7% stake, or around 10.9 million HLT shares.
This isn't the first time Pershing has owned HLT shares in recent memory. They sold their previous stake in Q2 of 2017 after the company split itself up into a real estate company, an asset light management company, and a timeshare business.
This time around, they've bought HLT, which is just the asset light hotel management business. This year, HLT shares have dropped from a high of $87.62 to a low of $63.76 before slightly rebounding to current levels of around $67.
For more on this fund, we've also highlighted their Pershing Square's new position in Starbucks (SBUX) and thesis presentation.
Summary of Great Investors' Best Ideas Conference (GIBI) Dallas 2018
The 2018 Great Investors' Best Ideas (GIBI) Dallas Conference recently concluded with proceeds benefiting The Michael J. Fox Foundation for Parkinson's Research and the Vickery Meadow Youth Development Foundation. Here's a brief summary of the event:
Great Investors Best Ideas Dallas Conference 2018
Lee Ainslie (Maverick Capital) talked with Lee Hobson (Highside Capital) about quantitative investing and utilizing its features to replicate various typical fundamental processes: screening companies, position sizing, data sets. Maverick has been focused on the intersection of man and machine, instead of simply one versus the other. Didn't pitch any individual names. Maverick has launched four quant funds over the past few years that have higher turnover, in addition to their fundamental hedge fund.
Jim Grant (Grant's Interest Rate Observer): Likes municipal
closed end fund BlackRock Investment Quality Municipal Trust (BKN), says trading at 13% discount. Also recommended
shorting Matthews International (MATW) due to aggressive accounting, as
well as fighting secular trends like the shift to cremation.
Ray Nixon Jr (Barrow, Hanley, Mewhinney & Strauss): Pitched General Electric (GE), sees valuation around $12 on a sum of the parts basis. Obviously there's been a lot of volatility in this name.
Lisa Hess (SkyTop Capital): Bullish on the electric vehicle shift. Pitched Sherritt International debt: 7.875% 2025, as well as Aumann in Germany, a copper coil play. Also mentioned that Tesla (TSLA) is a religion, not a stock.
Michael Price (MFP Investors): Bullish on AT&T (T) as well as Intel (INTC).
Marc Cohodes (Former Managing Director of Copper River Management): Negative on MiMedx Group (MDXG). Also mentioned Intec Pharma (NTEC) as a long.
Richard Mashaal (Senvest Management): Paramount Resources (Canadian E&P), sees a double or triple in next 1-1.5 years. Cited increased production and hidden assets as reasons for bullishness, also thinks multiple could re-rate.
Ken Hersh (George W. Bush Presidential Center): e-Sports is a
huge business in early innings. Sees 280 million fans going to 550
million in next 4-5 years. Plays on the trend include Amazon (AMZN) due
to their ownership of streaming platform Twitch, game maker Activision
Blizzard (ATVI), and graphics card maker nVidia (NVDA).
Roger Staubach (Former Executive Chairman JLL Americas): "Adversity reveals genius and prosperity conceals it."
Stay tuned in the next few weeks as we'll be covering a ton of investment conferences.
Third Point's Campbells Video: Empty the Can
As we've detailed previously, Dan Loeb's hedge fund firm Third Point is long Campbells (CPB) and has an activist position as they seek to replace the entire board. We've posted their presentation on Campbells before.
Now, Third Point has released a short 4-minute video regarding their campaign and the problems at Campbells and they continue to use the hashtag: #RefreshTheRecipe.
Embedded below is Third Point's video: "Empty the Can"
Wednesday, October 24, 2018
What We're Reading ~ 10/24/18
Big Mistakes: The Best Investors and Their Worst Investments [Michael Batnick]
Fortune's Future 50 list: companies with best prospects for long-term growth [Fortune]
On shallow risk versus deep risk [A Wealth of Common Sense]
On Netflix's pricing power [Intrinsic Investing]
The quality of quantity at Netflix [FT Alphaville]
The economic cycle that just won't end [Morningstar]
Profile of businessman Tilman Fertitta [SBNation]
Louis Vuitton, Chanel most valuable brands but Gucci is gaining [Business of Fashion]
Amazon sets sights on the $88 billion online ad market [NYTimes]
How car ownership is changing rapidly in India [Economic Times]
Where to invest when US equities are overvalued [Mutual Fund Observer]
Viking Global Starts Position in Berry Global Group
Per a 13G filed with the SEC, Andreas Halvorsen's hedge fund firm Viking Global now owns 5.5% of Berry Global Group (BERY) with over 7.19 million shares.
This is a newly disclosed position for the firm as they did not own any shares as of the end of the second quarter.
The filing was made due to portfolio activity on October 12th. Berry Global was previously known as Berry Plastics.
Per Yahoo Finance, Berry Global "manufactures and distributes engineered materials, nonwoven specialty materials, and consumer packaging products. The company operates through three segments: Engineered Materials; Health, Hygiene & Specialties; and Consumer Packaging. It offers engineered materials, including stretch and shrink films, and converter films; trash-can liners and food bags; cloth and foil, splicing and laminating, flame-retardant, vinyl-coated and carton sealing, electrical, double-faced cloth, masking, mounting, OEM, and medical and specialty tapes; and food and consumer films, retail bags, and polyvinyl chloride films. The company also provides components for baby diapers and other absorbent hygiene products, feminine hygiene products, medical garment materials, substrates for dryer sheets, household cleaning wipes, filters, protective house wraps, and specialty agriculture and industrial products; components for adult incontinence, surgical drapes, face masks, corrosion protection, cable wrap, geosynthetics, and specialty filtration products; and a range of products for baby care, infection prevention, and food and household packaging. In addition, it offers containers; foodservice products, such as thermoformed polypropylene and injection-molded plastic drink cups and lids; closures and over caps comprising continuous-thread and child-resistant closures, as well as aerosol over caps; bottle and prescription containers; and extruded and laminate tubes"
Tiger Global Buys More Apollo Global Management Shares
Chase Coleman's hedge fund firm Tiger Global has filed a Form 4 with the SEC regarding its position in Apollo Global Management (APO). Per the filing, Tiger was out buying shares on October 22nd and 23rd.
In total, Tiger bought 815,000 shares at weighted average purchase prices of $29.57, $28.421, and $29.365. After these purchases, they now own over 35.23 million APO shares.
For more on this hedge fund, we recently highlighted other Tiger Global portfolio activity here.
Bruce Berkowitz Reduces Sears Position
Bruce Berkowitz's Fairholme Capital has filed a 13G with the SEC regarding its position in Sears Holdings (SHLD). Per the filing, Fairholme now owns 4.2% of the company with over 4.57 million shares.
This is a sizable decrease from the previous 17.42 million shares Fairholme reported owning at the end of the second quarter. The most recent filing was due to portfolio activity on October 15th.
Sears recently filed for bankruptcy and Berkowitz has ridden this investment all the way down, making it one of his biggest mistakes.
Monday, October 22, 2018
Graham & Doddsville Fall 2018 Issue: Tweedy Browne, Greenhaven Road & More
Columbia Business School has just released the Fall 2018 issue of its Graham & Doddsville newsletter. In it, they interview members of Tweedy, Browne Company such as Roger De Bree, Andrew Ewert, Frank Hawrylak, Jay Hill, Amelia Koh, Tom Shrager, John Spears, and Bob Wyckoff. They also interview Scott Miller of Greenhaven Road Capital.
Additionally, the issue also includes student investment pitches such as long JD.com (JD) and long Qorvo (QRVO)
Tweedy Browne Buys Baidu, Sina, AutoZone
Tweedy recently bought some Chinese equities: search engine giant Baidu (BIDU) and Sina (SINA), which owns Weibo, a popular social media business. They like the profitable advertising business models but have smaller position sizes due to various risks.
Domestically, Tweedy also purchased shares of AutoZone (AZO): "If you lookover the previous 11-yearperiod, its intrinsic value grew by 16% per annum, with a significant percentage of that growth driven by share buybacks. The historical record also revealed a stable and defensive business. Same store sales at AutoZone have grown in 19 out of the last 20 years, including in 2008 and 2009.AutoZone has also historically produced high returns, with a 14% ROA (return on assets) and a roughly 30% lease adjusted ROIC (return on invested capital)."
Greenhaven Road Long Etsy, Fiat, Yelp
Greenhaven Road's founder talks about his positions in Etsy, (ETSY), Fiat Chrysler (FCAU) and Yelp (YELP).
On Fiat, he notes: "Fiat Chrysler is reducing the low margin fleet business by getting out of sedans and focusing on SUVs, aligning themselves with customer preferences and higher margins.They are also going to either spin off or sell their parts division. If you backout the parts business, you're getting the core business for less than 3x earnings excluding net industrial cash and the parts business. That’s an attractive multiple for a growing earnings stream and a business that should remain profitable even if US new car sales decline by 30%."
Graham & Doddsville New Fall 2018 Issue
Embedded below is the new issue:
You can download a pdf copy here.
Friday, October 19, 2018
Hedge Fund Links ~ 10/19/18
Taking investment teams from good to great [CFA Institute]
Profile of Cliff Asness [Bloomberg]
Summary of Sohn Tel Aviv conference [Reuters]
Ray Dalio on the most important habits to build [LinkedIn]
Eddie Lampert was a wizard, now he's coming to terms with failure [NYTimes]
Profile of Joel Greenblatt [Barrons]
Hedge fund bets on beaten up New York Taxi medallions [WSJ]
Hedge fund stars crying uncle gives industry hope [Bloomberg]
Tips for aspiring portfolio managers [CFA Institute]
Hedge funds: Your fees are Bull%$&* [Institutional Investor]
Ray Dalio's Principles for Navigating Big Debt Crises: Free PDF
Bridgewater Associates founder Ray Dalio has recently released a free PDF entitled Principles for Navigating Big Debt Crises. Dalio has written this for the 10-year anniversary of the financial crisis.
It's got quite the endorsement from former Federal Reserve Chairman Ben Bernanke himself, who said: "Ray Dalio's excellent study provides an innovative way of thinking about debt crises and the policy response."
You can download the free .pdf here.
And if you haven't already, be sure to also check out Dalio's first book, Principles which is quite the tome of knowledge on his ways of thinking and approaching things.
Wednesday, October 17, 2018
Value Invest New York Conference: Exclusive Discount
The conference speaker line-up includes Joel Greenblatt, Howard Marks, Matthew McLennan and many others - see the full speaker line-up and presentation titles below.
As a partner offer, the organizers have offered MarketFolly readers a $200 discount on a ticket to attend if booked before October 31, plus also a free eBook from Harriman House worth $20 (no conference ticket purchase required).
Take advantage of the exclusive discount before it expires in 2 weeks! To save, click here to register and use discount code: Marketfolly-VINY18
Click here to see the full speaker line-up
- Howard Marks - Oaktree Capital: "Mastering the Market Cycle": Fireside Chat and Audience Q&A Hosted by Scott Wapner of CNBC
- Joel Greenblatt - Gotham Asset Management: Presentation title TBC
- Álvaro Guzmán de Lázaro & Fernando Bernad - azValor: "Buying Deeply Undervalued Real Assets"
- David Iben - Kopernik Global Investors: "The Value of Being Approximately Right In a Market that Appears to be Increasingly Precisely Wrong"
- Ben Preston - Orbis Investments: "Vale: Blue Sky Mine"
- Matthew McLennan - First Eagle Investment Management: "The Value of Scarcity and Resilience"
- Richard Chilton - Chilton Investment Company: "A Private Equity Approach to Investing in High-Quality Stocks"
- Bernard Horn - Polaris Capital: "A Global Snapshot of Value Opportunities"
- Andrew Wellington - Lyrical Asset Management: "Value Hidden in Plain Sight"
- Ronald Chan - Chartwell Capital: "The Value Handover"
- Nigel Waller & Andrew Goodwin - Oldfield Partners: "Value Investing in an Age of Disruption"
- Rajiv Jain - GQG Partners: Title TBC
- Jonathan Boyar - Boyar Value Group: Title TBC
- Robert Hagstrom - EquityCompass Strategies: Title TBC
- David Shapiro - Willis Towers Watson (Moderator)
If you have any questions about Value Invest New York please direct them to the organizers at newyork@valueinvest.com
Tuesday, October 16, 2018
What We're Reading ~ 10/16/18
Why family businesses outperform [Credit Suisse]
Exclusive interview with Amazon founder Jeff Bezos [Forbes]
Op-ed from AQR's Cliff Asness: Buyback derangement syndrome [WSJ]
The untold story of Stripe, the secretive $20 billion payments startup [Wired]
Profile of the owner of the In-N-Out burger chain [Forbes]
Bob Iger's bets are paying off big time for Disney [TIME]
Pitch on Henry Schein (HSCI) [Spruce Point Management]
A pitch on Tempur Sealy [Barrons]
A capacity to suffer and setting the right expectations [Scuttlebutt Investor]
Can Larry Culp fix General Electric? [WSJ]
LendingTree is the secret success story of FinTech [TechCrunch]
Why facts don't change our minds [James Clear]
Atomic Habits: An easy and proven way to build good habits [James Clear]
A day in the life of a Waymo self-driving taxi [The Verge]
The gambler who cracked the horse-racing code [Bloomberg]
Monday, October 15, 2018
Carl Icahn Buys Dell Technologies Tracking Stock, Opposes Merger, Sends Letter
Activist investor Carl Icahn today unveiled a new 8.3% ownership stake in Dell Technologies tracking stock (DVMT) with over 16.5 million shares. He opposes the DVMT merger and released a very detailed lettering outlining his thesis and thoughts (all emphasis his):
Icahn's Letter to DVMT Shareholders
"Fellow DVMT Stockholders:
Over the decades I’ve spent much of my time searching for undervalued companies. We are very proud of our record. In fact, an investment in Icahn Enterprises depositary units made at the beginning of 2000 (when Icahn Enterprises began to fully embrace the activist strategy) has increased by approximately 1,514%, or an annualized return of 16%, through October 11, 2018 (assuming reinvestment of dividends). We have also made hundreds of billions of dollars for stockholders in companies in which we have been activist investors. However, we freely admit that many of the companies we have invested in were identified to us by stockholders who sought our assistance against mediocre management who were attempting to profit at stockholder expense. As you know, even the worst management and boards in this country are extremely difficult to dislodge.
A few months ago, several large holders of Dell Technologies Inc.’s tracking stock (“DVMT” or the “Tracker”) contacted me to express their concerns regarding, and their opposition to, Michael Dell’s and Silver Lake’s machinations and activities related to the Tracker, as well as stressing that the Tracker was, and is, deeply undervalued. (Five years ago, I vehemently fought Michael Dell who many stockholders believed was severely underpaying for the company in a going-private transaction). After researching the current situation, I quickly realized that while we have unearthed many undervalued opportunities in the past, very few companies compare to the current opportunity and the massive undervaluation of DVMT — which exists in plain sight for all to see.
The Dell Tracker currently sells for approximately $92 per share but is worth on a pure mathematical basis approximately $144 per share[1]. In my opinion, this massive distortion exists because (i) as a result of the 2013 going-private transaction, we believe the market does not trust Michael Dell or Silver Lake; (ii) the Tracker has basically zero governance rights and is trapped within a capital structure that has some of the worst corporate governance in America (at Dell, the Certificate of Incorporation even requires that the CEO has to agree to replace the CEO!), however, investor fear of this poor governance is overdone and we believe strong activism combined with litigation, if necessary, can mitigate the governance risks; and (iii) for the better part of the past year, Dell and Silver Lake worked to destroy the value of the Tracker by (1) raising the possibility of a Dell IPO, (2) floating the idea of a merger with VMware and (3) threatening a forced conversion of the Tracker into Dell common stock, among other tactics. These scare tactics are reminiscent of the tactics Machiavelli advised the Borgia rulers to use centuries ago.
Several years ago, I believe Dell and Silver Lake realized that Dell Technologies was simply a highly-leveraged hardware company facing great secular challenges and would never enjoy the growth and success of Apple and Microsoft. Therefore, they levered up dramatically to purchase EMC Corporation (“EMC”), a better positioned hybrid hardware and software company, whose crown jewel was its 82% ownership interest in VMware, Inc. (“VMware” or “VMW”). But, to purchase EMC, Dell needed $10 billion more than its bankers could possibly arrange, and they also needed to convince EMC stockholders that Dell’s offer was worth accepting. They accomplished this by engineering the DVMT Tracker that they said would allow EMC stockholders to continue to participate in VMware’s upside.
Because a tracking stock is unusual and rarely included as merger consideration, Dell and its bankers had to convince EMC stockholders that the Tracker would efficiently “track” the economic value of VMware shares. To that end, one of Dell’s bankers at the time delivered a fairness opinion that assumed the Tracker would trade at a range of +/- 5% to VMware shares; while another banker assumed the Tracker would not trade at more than a 0-10% discount to VMware shares.[2] Dell sold EMC stockholders the Tracker assuming, at most, no more than a 10% discount, yet today, Dell and some of those same bankers are now soliciting your vote to agree to exchange your DVMT shares at a 36% discount![3]
It seems clear that Dell has long-planned to repurchase the Tracker at bargain basement prices. For two years, Dell management have publicly boasted about Dell’s “…opportunistic opportunities in the market to take advantage of the discount between the two securities”[4] and have repurchased over 23 million DVMT shares at substantial discounts. This plan significantly benefits Michael Dell and Silver Lake, but at a huge cost to the DVMT stockholders. Why hasn’t the Dell Board been exercising its fiduciary duties owed to the DVMT stockholders, as opposed to just the controlling stockholders? Make no mistake, if the current “opportunistic” deal succeeds, 100% of the discount, approximately $11 billion, will be an economic windfall mostly attributable to Michael Dell and his Silver Lake partners. It is clear to me that Dell and Silver Lake have followed Machiavelli’s advice to the letter: It is better to be respected than loved, but better still to be feared than respected.
In January 2018, Dell commenced its fear campaign by telling stockholders that Dell was evaluating potential business combinations between Dell and VMware, Inc. DVMT stockholders and the market generally feared that this meant a possible reverse-merger with VMware which would result in a significant multiple contraction for the combined companies which would mean a much lower combined company stock price for the former VMware stockholders. This obviously would also result in a lower value for the DVMT stock. For good reason, these disclosures sowed fear and uncertainty that resulted in a precipitous fall in price for both VMW shares and DVMT shares. In a two-week period both stocks dropped over 25%. It is very hard to believe that Michael Dell and Silver Lake did not fully anticipate this drop and we believe this was a carefully calculated (and successful) attempt to frighten VMW and DVMT stockholders. It appears to us that VMW management and the VMW independent board members wanted no part of a merger with Dell. Instead, they agreed to dividend $9 billion to Dell to obtain some relief from, and at least postpone, a merger with Dell. Once the threat of a merger was effectively off the table, VMW and DVMT shares recovered a good part of their lost value and the discount narrowed modestly, but it continues to persist.
But, Michael Dell’s and Silver Lake’s ultimate objective was, and still is, to purchase the Tracker at a large discount and they would not be deterred. They therefore successfully struck a deal with Dell’s independent directors to exchange DVMT shares for cash and Dell stock, at a ridiculously low valuation. Instead of paying the mathematical value of $144 per share for the Tracker, they are currently offering to pay what we estimate is only $94 per share.[5] Although I know and respect one of the Dell independent directors, by agreeing to this deal, I can only conclude the independent directors must have been misinformed by advisors working for Dell and Silver Lake or by Michael Dell and Silver Lake themselves. Otherwise, it is unquestionable, in my opinion, that the independent directors breached their fiduciary duties to the DVMT stockholders. How else can one explain an agreement that so obviously transfers $11 billion in value to the controlling stockholders at the expense of the minority stockholders? The one thing these independent directors did get right, however, was to condition the deal on DVMT stockholder approval. I believe the Dell independent directors must take their fiduciary duties to the DVMT stockholders seriously. Any future transactions proposed by the controlling stockholders must always be assumed to be at the expense of the DVMT stockholders and the independent directors must always demand robust protections for the DVMT stockholders. The Board’s fiduciary duty to all stockholders demands nothing less, especially after this fiasco!
Dell now appears to be realizing that DVMT stockholders are uniformly and stubbornly against the proposed DVMT merger and is now moving into the next phase of its fear-mongering campaign. By using the scare tactic of disclosing that they have met with investment bankers to explore a potential IPO of Dell’s Class C common stock, Dell is effectively telling its public stockholders that if we, the DVMT stockholders, do not approve their proposed DVMT merger, they will invoke a draconian provision in their Charter and force us to convert our DVMT shares into Dell stock following a Dell IPO. Fortunately, in my opinion, their threat to “cram down” a forced IPO conversion is another empty one, if we stand together.
[1] Based on DVMT share price of $91.74 and VMware stock price of $141.49, as of October 11, 2018. Assumes Class V Common Stock interest in 61.1% of the 331 million VMW shares attributable to the Class V Group, per Dell Technologies Inc.’s Form S-4/A, filed with the Securities and Exchange Commission, on October 4, 2018.
[2] As disclosed in the EMC Definitive Proxy Statement, dated June 6, 2016.
[3] Based on the value of 199 million outstanding DVMT shares, at $91.74 per share, compared to the value of 61.1% of Class V Group’s interest in 331 million VMware shares, at $141.29 per share.
[4] Dell Chief Financial Officer comments made during Dell’s earnings call on March 30, 2017.
[5] Based on a 5.0x multiple of FY2019E “Core Dell” EBITDA of $7 billion and market prices as of October 11, 2018 for VMware, Pivotal and SecureWorks. Assumes DVMT shares exchanged for $9 billion of cash and 1.3665 subject to proration.
[6] Cash flow projections based on Bank of America Merrill Lynch report, dated July 16, 2018. FCF valuation multiple based on comparable company analysis, including MSFT, RHT and CTXS.
Cat Rock Capital Increases SharpSpring Position
Alexander Captain's hedge fund firm Cat Rock Capital has filed an amended 13G with the SEC regarding its stake in SharpSpring (SHSP). Per the filing, Cat Rock now owns 15.01% of the company with over 1.22 million shares.
This is up from the 936,935 shares they reported as of July 16th in their previous 13G filing. The newly amended 13G was made due to activity on September 24th. Prior to founding Cat Rock, Captain worked at Tiger Global.
Per Yahoo Finance, SharpSpring is "operates as a cloud-based marketing technology company worldwide. The company offers SharpSpring, a marketing automation solution for small and mid-size businesses. It markets and sells its products and services through sales teams and third party resellers. The company was formerly known as SMTP, Inc. and changed its name to SharpSpring, Inc. in December 2015. SharpSpring, Inc. was incorporated in 1998 and is headquartered in Gainesville, Florida."
Tiger Global Buys More Sunrun
Chase Coleman's hedge fund firm Tiger Global has filed a Form 4 with the SEC regarding its position in Sunrun (RUN). Per the filing, Tiger Global now owns over 15.23 million shares.
They purchased RUN shares on October 9th, 10th, and 11th at weighted average prices of $11.1267, $11.9614, and $11.9757. In total, they bought 231,357 shares.
As we've detailed previously, Tiger Global has increased its stake over the course of the year.
Per Yahoo Finance, Sunrun "engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It also sells solar leads. The company markets and sells its products through direct channels, partner channels, mass media, digital media, canvassing, referral, retail, and field marketing. Sunrun Inc. was founded in 2007 and is headquartered in San Francisco, California."
Friday, October 12, 2018
Sohn San Francisco Investment Conference: Final Speakers & Registration
The Sohn San Francisco Investment Conference is only a few weeks away on October 29th. It will feature top investment managers sharing investment ideas in order to support the Excellence in Investing for Children's Causes Foundation and its beneficiaries.
The conference supports organizations improving educational opportunities for under-served youth and a portion of the proceeds also benefits The Sohn Conference Foundation and their research on pediatric cancer.
If you're on the west coast, this is the investment conference to attend. You can get more information about the conference here: https://excellencesf.org/
Sohn San Francisco Speakers List
- Mick McGuire, Marcato Capital Management
- Alex Gleser, TPG Public Equity Partners
- Glen Kacher, Light Street Capital
- Andrew Parmentier, Highland Capital
- Shashin Shah, Think Investments
- Dan Morehead, Pantera Capital
- Kevin Oram, Praesidium Investment Management
- Jeff Osher, No Street Capital
- Jeff Shen, Ph.D., BlackRock
- Gil Simon, SoMa Equity Partners
- Mayor London N. Breed, Mayor of San Francisco
You can hear all the investment pitches from these managers by registering for the conference here.
Next Wave Sohn Speakers
- Vineer Bhansali, Ph.D., Long Tail Alpha
- Marcelo Desio, Lucha Capital Management
- Daniel Kozlowski, Plaisance Capital
- Franklin Parlamis, Aequim Alternative Investments
Event Details
When: October 29th, 2018
Where: Hyatt Regency, San Francisco
Schedule:
11:30am to 12:30pm - Networking and Buffet Lunch
12:30pm to 2:00pm - Next Wave Sohn: Emerging Managers
2:30pm to 6pm - Sohn Conference Main Event
6:00 pm to 7:30pm - Cocktail Reception
The conference is only a few weeks away, so act quickly before it's too late. Click here to register for the event.
Hedge Fund Links ~ 10/12/18
Hedge fund Highfields Capital to shut down [Reuters]
Another shutdown: Tourbillon Capital [Bloomberg]
Recent thoughts from Stan Druckenmiller [Business Insider]
Profile of Elliott Management's Paul Singer [New Yorker]
Profile of Jim Chanos [Institutional Investor]
Profile of Joseph Edelman: The 41% man [Institutional Investor]
Study finds funds in the business of breaking up deals see payday [CNBC]
At hedge funds, where are the women? [WSJ]
The incredible shrinking hedge fund [Bloomberg]
When not to invest in a hedge fund [Institutional Investor]
A fund manager's fancy car might be a red flag [Barrons]
Viking Global Files 13D on Urovant Sciences
Andreas Halvorsen's hedge fund firm Viking Global has filed a 13D with the SEC regarding shares of Urovant Sciences (UROV). Per the filing, Viking now shows a 75.6% stake in the company with over 22.7 million shares, though the 13D notes that "The Reporting Persons do not directly own any Common Shares."
The company recently completed its initial public offering (IPO). Viking has previously invested in Roivant Sciences in 2016, a holding company that has created numerous subsidiaries, including newly public Urovant, which could explain Viking's SEC filing. Other Roivant subsidiaries include Axovant Sciences, Myovant Sciences, and Enzyvant Sciences, to name a few.
Viking also invested in Roivant again in 2017 with an undisclosed amount of funding. SoftBank's Vision Fund is also an investor in Roivant, but not the subsidiaries, at least that was the case as of mid-2017. Roivant was founded by Vivek Ramaswamy.
