What We're Reading ~ 3/28/18

A look at Todd Combs and his healthcare pursuit [Bloomberg]

Not all quality companies are quality stocks [Albert Bridge Capital]

From the archives: On sources of edge [Miller Value Partners]

Debt, loans and credit quality: the devil's in the details [Frank K. Martin]

Summary of some recent macro data and charts [Dash of Insight]

Why volatility matters [Newfound Research]

TV's death by a thousand streaming apps [Bloomberg]

How calls for privacy may upend business for Google and Facebook [NYTimes]

Trump hates Amazon, not Facebook [Axios]

The largest company in every state by revenue [Visual Capitalist]

Pershing Square Annual Report 2017: Sold Nike, Covered Herbalife Short

Bill Ackman's Pershing Square is out with its annual report for 2017.  For the year, they lost 4% net.

The report gives updates on their positions in Automatic Data Processing (ADP), Restaurant Brands (QSR), Mondelez (MDLZ), Howard Hughes (HHC), Chipotle (CMG), Fannie Mae & Freddie Mac, and Platform Specialty Products (PAH).

Pershing Square Sold Nike (NKE) Position Already

Pershing Square reveals they already sold their new Nike (NKE) position and explain the rationale below:

"During the course of our four-month ownership of Nike (we sold the position recently), the stock price appreciated by34%, reducing the returns to be earned from our investment to a level at which we believed our capital could be allocated to more attractive opportunities.  It is rare that we are a short-term investor.That said,we are always willing to redeploy capital if an investment appreciates to a level that no longer offers sufficient returns relative to other potential opportunities."


Rationale For Covering Herbalife (HLF) Short

They also outline why they covered their Herbalife (HLF) short position:

"While we have been correct in our belief that Herbalife’s business fundamentals would deteriorate as earnings per share, revenue growth, and other measures of business performance weakened substantially since we initiated the investment, we underestimated Herbalife’s ability to access debt capital and use financial engineering which–coupled with Mr.Icahn’s share purchases to materially reduce the company’s free float–has driven share price appreciation."


Embedded below is Pershing Square's 2017 annual report:



You can download a .pdf copy here.

Fairholme Capital Reduces Seritage Growth Properties Position

Bruce Berkowitz's Fairholme Capital has filed an amended 13G regarding its position in Seritage Growth Properties (SRG).  Per the filing, Fairholme now owns 4.9% of the company with 1.69 million shares.

The filing was made due to activity on March 16th.  This is down from the previous 3.27 million shares Fairholme owned at the end of 2017.

Per the company's website, Seritage is "a publicly traded, self-administered, self-managed REIT with a portfolio of 235 wholly-owned properties and 31 joint venture properties, consisting of approximately 42 million square feet of building space."

Glenview Capital Boosts Newell Brands Exposure

Larry Robbins' hedge fund firm Glenview Capital has ratcheted up its exposure to Newell Brands (NWL).  Per a 13G filed with the SEC, Glenview now shows a 5.56% ownership stake with over 26.96 million shares. 

The filing was made due to portfolio activity on March 16th.  This is up from the 17 million shares they owned at the end of 2017. 

As we've highlighted previously, activist investor Starboard Value is involved in Newell shares and it's recently been revealed that Carl Icahn owns NWL as well. 

Berkshire Hathaway Files Amended 13D on USG

Warren Buffett's conglomerate Berkshire Hathaway has filed an amended 13D with the SEC regarding its position in USG Corporation (USG).  Per the filing, Berkshire owns 30.8% of the company with 43.38 million shares as of March 23rd.

This is up slightly from the 39 million shares Berkshire reported owning at the end of 2017 per their most recent 13F filing.

The main reason for the filing is the information below, pulled verbatim from the filing:

"From time to time, beginning many years ago, executives of Gebr. Knauf Verwaltungsgesellschaft KG (“Gebr. Knauf”) and/or C & G Verwaltungs GmbH (“C & G Verwaltungs” and, together with Gebr. Knauf, the “Knauf Entities”) have contacted Berkshire’s Chief Executive Officer (“CEO”) to describe the Knauf Entities’ potential and conditional interest in a transaction with USG. Most recently, the Knauf Entities furnished Berkshire a copy of a letter from Gebr. Knauf to USG dated March 15, 2018 in which Gebr. Knauf submitted an indicative and non-binding proposal for the acquisition of 100% of the outstanding shares of Common Stock of USG at $42.00 per share.

On March 23, 2018 Berkshire’s CEO and another Berkshire executive held a telephonic discussion with two executives of the Knauf Entities and three representatives of one of the advisors of the Knauf Entities, during which Berkshire proposed to grant to the Knauf Entities an option to purchase all of the Berkshire Entities’ shares of Common Stock of USG, subject to legal review. Such option would be exercisable only in connection with the consummation of a purchase by the Knauf Entities of all of the outstanding shares of Common Stock of USG that the Knauf Entities did not already own, at a price of not less than $42.00 per share, subject to and in accordance with applicable law and contractual restrictions. The option exercise price per share was proposed by Berkshire to be the price per share paid to such other holders of Common Stock of USG by the Knauf Entities, less the option purchase price of $2.00 per share to be paid to the Berkshire Entities upon entering into a definitive option agreement. The option would have a term of approximately 6 months.

The Knauf Entities have not responded to this proposal, and the Reporting Persons do not know whether the Knauf Entities will pursue further discussion with Berkshire of the proposed option or will make an offer to purchase shares of Common Stock of USG. Berkshire has not agreed to support any plan or proposal by the Knauf Entities with respect to the Common Stock of USG, and there are no agreements, written or otherwise, between the Reporting Persons and the Knauf Entities.Depending upon price, market conditions, availability of funds, evaluation of other investment opportunities, and other factors, the Reporting Persons may at any time and from time to time sell or otherwise dispose of some or all of the shares of Common Stock of USG held by them, either as contemplated by the Registration Rights Agreement or in another manner permitted by applicable law."

Tiger Global Buys Some More Apollo Global

Chase Coleman's hedge fund firm Tiger Global has filed a Form 4 with the SEC regarding its ownership stake in Apollo Global (APO). 

Per the filing, Tiger acquired 100,000 APO shares on March 23rd at a weighted average price of $30.338.  After this transaction, they now own 34.32 million shares.

Apollo Global is an American private equity firm.

We've also highlighted another stock Tiger Global has been buying recently.

What We're Reading ~ 3/21/18

Skin in the Game: Hidden Asymmetries in Daily Life [Nassim Taleb]

Tech's next big wave: big data meets biology [Fortune]

Looking at the Wyndham spinoff [Clark Street Value]

Comcast and the curse of diversified holdings companies [Yet Another Value Blog]

An IPO valuation of Spotify [Aswath Damodaran]

The death of many brands: the rise & risks of concierge brands [Intrinsic Investing]

Billionaire raises his bet on containerships [WSJ]

How Amazon became corporate America's nightmare [Bloomberg]

The 10 best and worst performing stocks since the financial crisis [Zen Investor]

Senator Investment Group Files 13D on Gogo

Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a 13D with the SEC regarding shares of Gogo (GOGO).  Per the filing, Senator now owns 6.5% of the company with 5.64 million shares.

This is up from the 4.96 million shares they owned at the end of 2017, as they originally built a position in the third quarter of 2017 and continued buying in the fourth quarter.  The 13D notes they've talked with management and may do so in the future.

It also discloses their recent trading activity in the stock.  They were bought in late January and late February, with primary purchases coming between $9.0251 and $9.2546.  In total, they bought over 681,000 shares.

Per Google Finance, Gogo is "s a provider of in-flight broadband Internet service and other connectivity services for commercial and business aircraft, headquartered in Chicago, Illinois"

ValueAct Capital Increases Trinity Industries Exposure

Jeff Ubben's activist investment firm ValueAct Capital has filed an amended 13D and Form 4 with the SEC regarding its stake in Trinity Industries (TRN).  Per the filing, ValueAct now owns 13.8% of the company with over 20.76 million shares.

The filings indicate ValueAct purchased Form 4 indicates ValueAct purchased over 1.5 million shares across March 2nd, 6th, 7th, 8th, 15th, 16th, and 19th.  These purchases came at prices between $31.10 and $33.

For more on this firm, we recently highlighted another stock ValueAct was reducing its position in.

Per Google Finance, Trinity Industries is "a diversified industrial company that owns businesses providing products and services to the energy, chemical, agriculture, transportation and construction sectors. The Company's products and services include railcars and railcar parts; parts and steel components; the leasing, management and maintenance of railcars; highway products; construction aggregates; inland barges; structural wind towers; steel utility structures; storage and distribution containers, and trench shields and shoring products. The Company's segments include the Rail Group, Construction Products Group, Inland Barge Group, Energy Equipment Group, Railcar Leasing and Management Services Group, and All Other. Its All Other segment includes its captive insurance and transportation companies, and other peripheral businesses. It manufactures a line of railcars, including autorack cars, box cars, covered hopper cars, gondola cars, intermodal cars, open hopper cars and tank cars."

Carl Icahn Files 13D on Newell Brands

Carl Icahn has filed an amended 13D with the SEC regarding his stake in Newell Brands (NWL).  Per the filing, Icahn now owns 6.96% of the company with 33.79 million shares (including shares underlying forward contracts).  The filing notes they've now formed a group with Brett Icahn and include his ownership stake.

The forward contracts have a forward price of $23 per share and expiration of January 28th, 2020 and includes exposure to just over 3.01 million shares.  The rest of Carl Icahn's position is common stock.  Brett Icahn owns 500,000 NWL shares.

The filing notes that Icahn started buying on January 25th and was buying as recently as March 16th.

In a previous CNBC interview, Icahn noted that, "I believe Newell itself is undervalued and that's why I bought it."  He said he originally bought NWL around $25

We've highlighted previously that activist firm Starboard Value has also been involved in Newell Brands.

TCI Fund Goes Activist on Altaba, Calls For Liquidation

Sir Christopher Hohn's investment firm TCI Fund Management has filed a 13D with the SEC regarding its position in Altaba (AABA).  They now own 9.7% of the company with 79.77 million shares.

They've been slowly selling shares throughout the first three months of the year, presumably to stay below the 10% ownership cap as AABA has been buying back stock.


TCI Goes Activist on Altaba

The big development here, is that they've converted their 13G into a 13D and gone activist.  They're calling for a liquidation of the company, which owns big stakes in Alibaba (BABA) and Yahoo Japan.

Hohn sent a letter to Altaba, detailed below:

"As you know TCI is the largest shareholder of Altaba owning close to 10% of the company. We have very much appreciated your efforts to create shareholder value. We fully agree with your explicit goal of narrowing the wide discount to net asset value at which Altaba continues to trade.However, we believe that the current strategy of Altaba is unlikely to materially reduce this discount. A clear plan of liquidation is now necessary. This should involve a complete distribution or sale of all of Altaba’s Alibaba and Yahoo Japan shares.We attach a presentation for the Board and shareholders of Altaba laying out in summary our proposed plan of liquidation. We strongly believe that the vast majority of Altaba’s shareholders would be supportive of this plan.We have today converted our SEC filing to a 13D so that we may engage actively with you, the Board of Altaba and all shareholders to create the best outcome for all parties. We look forward to engaging with you constructively as you consider our proposal."

TCI's Presentation on Altaba

Hohn's firm also published a presentation on AABA and we've embedded it below.

Hedge Fund Links ~ 3/16/17

A look at D.E. Shaw: How a group of computer geeks changed Wall St [NYMag]

Paul Tudor Jones predicts inflation surge [CNBC]

Elliott Management urges change at Telecom Italia [Bloomberg]

Coatue's Philippe Laffont says AI will transform Intel and Twitter [Forbes]

On Bridgewater's big bet against Europe [Reuters]

Halvorsen's Viking moves into big data [Bloomberg]

Greenlight off to a rough start this year [Reuters]

US Treasury to close carried interest loophole [Reuters]

Paulson & Co Buys More International Tower Hill Mines

John Paulson's hedge fund firm Paulson & Co has filed a 13D and Form 4 with the SEC regarding its stake in International Tower Hill Mines (THM).  Per the filing, Paulson now owns 31.97% of the company with 59.59 million shares. 

The Form 4 notes they bought over 4.1 million shares on March 13th at a price of $0.50 per share.  The 13D notes this transaction was a private placement.

Per Yahoo Finance, International Tower Hill Mines is "a mineral exploration company, acquires and explores for mineral properties in Canada and the United States. It holds or has rights to acquire ownership or leasehold interests in the Livengood Gold Project that covers approximately 19,546 hectares located to the northwest of Fairbanks, Alaska. The company was formerly known as Tower Hill Mines Ltd. and changed its name to International Tower Hill Mines Ltd. in March 1991. International Tower Hill Mines Ltd. was founded in 1978 and is headquartered in Vancouver, Canada."

ValueAct Capital Reduces Armstrong World Industries Exposure

Jeff Ubben's activist investment firm ValueAct Capital has filed a 13D and a Form 4 with the SEC regarding its stake in Armstrong World Industries (AWI).  Per the filing, ValueAct now owns 12.9% of the company with 6.85 million shares. 

The Form 4 notes they sold 2.35 million shares on March 12th at $59.60 per share.  We've also highlighted other recent portfolio activity from ValueAct here.

Per Google Finance, Armstrong World Industries is "a global producer of ceiling systems. The Company owns and operates the Building Products (Ceilings) segment. The Company designs, manufactures and sells ceiling systems (primarily mineral fiber, fiberglass wool and metal) around the world. Its products are used in commercial and institutional buildings. Its geographical segments include Americas (including Canada); Europe, Middle East and Africa (including Russia) (EMEA), and Pacific Rim. As of December 31, 2016, it had 15 manufacturing plants in eight countries, including six plants located throughout the United States. Its Americas segment sells products for use in single and multi-family housing. It sells commercial products to building materials distributors re-selling its products to contractors, subcontractors' alliances, architect and design firms, and facility owners. Residential ceiling products are sold in the Americas primarily to wholesalers and retailers."

What We're Reading ~ 3/14/18

On buybacks and the instant gratification of financial engineering [Frank Martin]

Michael Mauboussin on the future of active management [Sumzero]

Google's Larry Page: flying taxis, now exiting stealth mode [NYTimes]

Amazon strategy teardown [CB Insights]

Netflix's secrets to success [Variety]

18 cognitive bias examples visualized [Visual Capitalist]

Crowdsourcing: what 5 stocks would you hold for 10 years? [Scuttlebutt Investor]

Which advertising channels have the highest conversion rates? [Priceonomics]

Business schools rethink MBA strategy as market demand shifts [FT]

On shifting institutional investors from benchmark-based to goal-based [Institutional Investor]

Pershing Square Trims Automatic Data Processing (ADP) Position

Bill Ackman's activist investment firm Pershing Square Capital has filed an amended 13D with the SEC regarding its position in Automatic Data Processing (ADP).  Per the filing, Pershing now owns 7.2% of the company with 31.79 million shares.

It notes that, Pershing "sold a net amount of 5,004,633 shares of Common Stock and American-style call options for portfolio management purposes.”  You can view the full list of transactions here.

For more on this fund, we highlighted some other recent portfolio activity from Pershing Square here.

Per Google Finance, ADP is "a provider of human capital management (HCM) solutions to employers, offering solutions to businesses of various sizes. The Company also provides business process outsourcing solutions. Its segments include Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers a range of human resources (HR) business process outsourcing and technology-enabled HCM solutions. These offerings include payroll services, benefits administration, talent management, HR management, time and attendance management, insurance services, retirement services, and tax and compliance services. ADP TotalSource, ADP's PEO business, offers small and mid-sized businesses a HR outsourcing solution through a co-employment model. As a PEO, ADP TotalSource provides HR management services while the client continues to direct the day-to-day job-related duties of the employees."

Eminence Capital Increases Papa John's Pizza Position

Ricky Sandler's hedge fund firm Eminence Capital has filed a 13G with the SEC regarding shares of Papa John's Pizza (PZZA).  Per the filing, Eminence now owns 6.5% of the company with over 2.19 million shares. 

The filing was made due to portfolio activity on February 28th.  This means they've increased their position size up from the 568,026 shares they owned at the end of 2017.

Per Google Finance, Papa John's Pizza is "operates and franchises pizza delivery and carryout restaurants and, in certain international markets, dine-in and delivery restaurants under the trademark Papa John's. The Company operates through five segments: domestic Company-owned restaurants, North America commissaries, North America franchising, international operations and all other business units. North America is defined as the United States and Canada. Domestic is defined as the contiguous United States. International franchisees are defined as all franchise operations outside of the United States and Canada. As of December 25, 2016, there were 5,097 Papa John's restaurants in operation, consisting of 744 Company-owned and 4,353 franchised restaurants operating domestically in all 50 states and in 45 countries and territories. It offers pizza along with side items, including breadsticks, cheesesticks, chicken poppers and wings, dessert items and canned or bottled beverages. "

Tiger Global Shows Bright Scholar Education Stake

Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding shares of Bright Scholar Education (BEDU).  Per the filing, Tiger now owns 5.8% of the company with over 1.57 million shares. 

The filing was made due to portfolio activity on February 28th.  They did not show an equity stake at the end of 2017 in their most recent 13F filing.

For more on this fund, we highlighted other recent portfolio activity from Tiger Global here.

Per Google Finance, Bright Scholar Education is "an operator of international and bilingual K-12 schools in China. The Company is engaged in providing international education to Chinese students. Its schools comprise international schools, bilingual schools and kindergartens. It offers a broad range of internationally-accredited curricula at its international schools. It also offers a range of complementary education services, including overseas camps and after-school programs. As of February 28, 2017, the Company had six international schools, which focus on internationally-accredited curricula and offer extracurricular activities and programs; 11 bilingual schools, which provide government-mandated curricula and developing students’ English proficiency; and 34 bilingual kindergartens, including 11 that deliver international curricula. As of February 28, 2017, the Company operated 51 schools."

Trian Partners Buys More Bank of New York Mellon (BK)

Nelson Peltz's activist investment firm Trian Partners has filed a Form 4 with the SEC regarding its position in Bank of New York Mellon (BK). 

Per the filing, Trian was buying 360,000 BK shares on March 9th at weighted average prices of $56.5188.  After this buy, Trian now owns over 16.12 million shares.

Per Google Finance, Bank of New York Mellon is "an investments company. The Company operates businesses through two segments: Investment Management and Investment Services. The Company also has an Other segment, which includes the leasing portfolio, corporate treasury activities (including its investment securities portfolio), derivatives and other trading, corporate and bank-owned life insurance and renewable energy investments, and business exits. As of December 31, 2016, the Company had $29.9 trillion in assets under custody and/or administration and $1.6 trillion in assets under management. The Company's Investment Management boutiques offer a range of actively managed equity, fixed income, alternative and liability-driven investments, along with passive products and cash management. The Company offers asset servicing, clearing services, issuer services and treasury services to its clients. "

Viking Global Discloses US Steel (X) Position

Andreas Halvorsen's hedge fund firm Viking Global has filed a 13G with the SEC regarding shares of US Steel (X).  Per the filing, Viking now owns 5.5% of the company with over 9.66 million shares. 

This is a newly disclosed equity position for the firm and the filing was made due to portfolio activity on February 27th.  This is now around a $425 million position, making it a top-20 US holding in their portfolio. 

Per Google Finance, US Steel is "an integrated steel producer. The Company is engaged in producing flat-rolled and tubular products with production operations in North America and Europe. The Company operates through three segments: Flat-Rolled Products (Flat-Rolled), U. S. Steel Europe (USSE) and Tubular Products (Tubular). The Flat-Rolled segment includes the operating results of its integrated steel plants and equity investees in the United States involved in the production of slabs, rounds, strip mill plates, sheets and tin mill products, as well as all iron ore and coke production facilities in the United States. The USSE segment includes the operating results of U. S. Steel Kosice (USSK) and its integrated steel plant and coke production facilities in Slovakia. The Tubular segment includes the operating results of its tubular production facilities, primarily in the United States and equity investees in the United States and Brazil."