This transaction elevates Third Avenue’s ownership of the company to 9.63 percent, according to a 13D SEC document filed yesterday. Third Avenue previously owned 6.3 percent of the company at more than 23 million shares; it is now at more than 35 million shares after this recent purchase.
The company uses a “bottom-up” investment approach to manage its portfolios, according to its website, “with the sole objective of delivering superior returns with limited investment risk over the long term.” Its philosophy is also influenced by corporate financial stability and opportunistic security selection, which has driven Whitman several times to label himself an outside passive minority investor (OPMI) but with a slightly different approach than other OPMIs.
In Third Avenue’s third quarter shareholder letter originally dated July 31, 2012, Whitman emphasized what set Third Avenue apart from other OPMIs: “In striving to achieve satisfactory returns on an overall risk adjusted basis, Third Avenue’s approach is markedly different from the approaches used by almost all others who also are primarily OPMIs. Almost all others are influenced strongly by the writings of Graham and Dodd (G&D) and/or the teachings of most academics under the rubric of Modern Capital Theory (MCT). The basic goal of both G&D and MCT is to study the factors that affect market prices for common stocks in OPMI markets, especially short run factors. For Third Avenue, in contrast, the basic goal is to obtain deep understanding of specific businesses and the securities they issue, especially emphasizing long-term factors.”
Third Avenue’s holding history with Tellabs dates back since the second quarter of 2009, when the fund started with a little under 25 million shares. Since then, Third Avenue has made several reductions in the 2009 and 2010 quarters when Tellabs’ market price underwent a spike. Third Avenue then stocked up on Tellabs shares in 2011 when its price deflated back down about $4.
TLAB data by GuruFocus.com
Headquartered in Naperville, Ill., Tellabs provides products that fit the needs of several communications market such as cable, enterprise, mobile, power utilities, telecommunications and even the federal government. Its products enable services such as broadband access, IP/Ethernet, network management, optical networking and time division multiplexing, according to its products description on its website.
With a market cap of $1.08 billion, Tellabs is currently trading at $2.94 per share.
In October, Tellabs released its third quarter report revealing lower revenue of $264 million compared last year’s $330 million. While it generated $10 million in cash from operations, Tellabs also reported a net loss of $4 million in GAAP or $0.01 per share, although still not as big a loss in the same quarter last year, which amounted to a $130 million net loss in GAAP.
The report in October also announced a restructuring initiative in Tellabs’ business model by lowering its costs and expenses starting the fourth quarter of this year, and increasing research and development investments that will strengthen its next-generation products, according to Tellabs chief executive president, Dan Kelly.
Tellabs is scheduled to distribute a cash dividend of $0.02 per share to shareholders on Nov. 30.
Third Avenue, home to mutual funds, separate accounts and alternative investments, has an equity value of $4.21 billion, and has 109 stocks in its portfolio. Technology appears in the top five sector represented in its portfolio, along with financials, basic materials, oil and gas and industrials.
Other tech stocks that appear in Third Avenue’s portfolio include Applied Materials Inc. (AMAT) where it is 2.2 percent owner, Sycamore Networks Inc. (SCMR) where it is 1.1 percent owner and Mantech International Corp. (MANT) where it is 0.86 percent owner.
Other Gurus who have holdings of Tellabs include Kyle Bass, Chuck Royce and Jim Simons.
To view more articles about Martin Whitman and Third Avenue Management, visit our GuruFocus archives.
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