The oil rout pulled two stocks down to a buying range for Fairholme Fund (Trades, Portfolio) investor Bruce Berkowitz (Trades, Portfolio) this week.
Berkowitz acquired more shares of Now Inc. (DNOW, Financial) and MRC Global Inc. (MRC, Financial) on Monday, positions he added in the third quarter to a portfolio mostly devoted to long-term plays. Now Inc., which supplies produces and services to the upstream, midstream and downstream energy markets, has seen its stock price dented 9% year to date, closing at $14.40 per share. Berkowitz’s purchases occurred in January and February at prices ranging from $12.80 to $15.26 per share and gave him a total 7,206,800 shares or 6.7% of the company. At fourth quarter-end Now Inc. stood at 4.7% of Berkowitz’s portfolio as his fourth largest holding.
MRC Global Inc. grew by 2% to more than 3% of the portfolio as purchases from January and February raised Berkowitz’s position to 5,748,200 shares, or 5.6% of the company. His share prices paid ranged from $9.07 to $10.78, as the stock plunged 19% year to date, closing at $10.49 Tuesday.
Berkowitz’s second company is also an industrial supplier to the upstream, midstream and downstream energy markets. In both cases, the investor reported his purchases in an active filing, disclosing board engagement and hinting at a merger proposal.
“The Reporting Persons reserve the right to be in contact with members of the Issuer's management, the members of the Issuer's Board of Directors, other significant shareholders and others regarding alternatives that the Issuer could employ to increase shareholder value,” Fairholme wrote verbatim in both filings.
“In addition, the Reporting Persons will be in contact with members of the Issuer's management, the members of the Issuer's Board of Directors, other significant shareholders and others regarding the Reporting Persons' views on the long-term prospects of the Issuer. The contact may include proposing or considering any of the actions enumerated in Item 4 of the instructions to Schedule 13D. In connection with the foregoing, the Reporting Persons have contacted members of the Issuer's management about a possible merger with another issuer.”
Berkowitz seeking to catalyze a merger for the two companies may echo another major acquisition in the oilfield services industry and the start of a possible trend precipitated by the plunge in oil prices. In August Schlumberger (SLB), the world’s largest oil services company by market cap, announced the acquisition of Cameron International (CAM), a manufacturer and oilfield service provider. Merging would allow the companies to streamline and reduce operating costs while offering both drilling and production support.
“With oil prices now at lower levels, oilfield services companies that deliver innovative technology and greater integration while improving efficiency, which our customers increasingly demand, will outperform the market,” Schlumberger Chairman and CEO Paal Kibsgaard said in a statement.
Another pair of oil products and services majors, Halliburton (HAL, Financial) and Baker Hughes (BHI, Financial), announced their merger in November. First expected to close by the end of 2015, the companies’ failure to supply a piece of required information caused European Union antitrust regulators to push their approval decision back to beyond June 23.
Bruce Berkowitz (Trades, Portfolio)’s Fairholme Fund (Trades, Portfolio) (FAIRX, Financial) fell 11.48% compared to a 1.38% return for the S&P 500. Compared to 4.08% for the S&P 500, he has returned 10.21% to investors since inception on an annualized basis.
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