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Holly LaFon
Holly LaFon
Articles (7929) 

Donald Yacktman Gets New Top Holding, Buys More Dell in Q3

October 15, 2013 | About:

In the rapidly rising market of the second quarter, Donald Yacktman bought only one new stock, Oracle (NYSE:ORCL). In the third quarter, he found no new investment ideas, but reported a new top holding in 21st Century Fox Corp. (NASDAQ:FOXA), the spin-off company of his former top holding, News Corp. (NASDAQ:NWS). The Yacktman Focused Fund and Yacktman Fund managers also bought more shares of the hotly contested Dell (DELL), which seven fellow guru investors sold out of and two – Carl Icahn and Paul Singer – increased their positions in by more than 2,000%.

At Sept. 30, 2013, Austin, Texas-based Yacktman Asset Management LP had $12.6 billion in assets under management. They describe their investment approach as:

“Yacktman employs a disciplined investment strategy, buying growth companies at what it believes to be low prices. Yacktman believes this approach combines the best features of "growth" and "value" investing. When they purchase stocks they generally search for companies they believe to possess one or more of the following three attributes: (1) good business; (2) shareholder-oriented management; or (3) low purchase price.”

21st Century Fox (NASDAQ:FOXA)

In the third quarter, Yacktman Asset Management reported owning 31.4 million shares of Twenty-First Century Fox Inc. Class-A shares, which compose 10.6% of their long portfolio. The shares came from the June 28 separation of News Corp. into two independent, publicly traded companies. News Corp changed its name to 21st Century Fox and created a new News Corp, and shareholders received one share of the new News Corporation Class-A or Class-B stock for every four shares of the old News Corp – or 21st Century Fox – they held.

While the Yacktman Fund held 31.75 million shares of News Corp in the second quarter, that was reduced to 5,547,000 shares of the new News Corp in the third quarter.

Yacktman commented on the holdings in his second quarter letter:

“News Corp. and Viacom were also strong contributors to the results during the quarter. At the end of June, News Corp. completed its spin-off. As a result, we now own shares in both 21st Century Fox (“Fox”), which owns an attractive collection of cable, broadcast, film and cable and satellite properties around the world and in News Corp. (retaining the old name), which largely consists of newspapers, book publishing and a collection of Australian assets.

By far our larger investment going forward is in the Fox shares, which we think will be one of the fastest growing media companies. Fox is extremely well positioned for growth, especially internationally, and in the next few months will launch Fox Sports 1, a national sports network which we think could be a significant new growth opportunity domestically.”

Dell (DELL)

The Yacktman Fund’s holding of Dell Inc. increased by 2,835,000 shares in the third quarter, the first new addition since it was established in the fourth quarter of 2012. At the end of the third quarter the position stood at 9,272,000 shares, or 1.3% of the portfolio. This makes the fund one of the smaller players to enter the fray since founder Michael Dell issued a bid to take the company private. Fellow gurus Carl Icahn and Mason Hawkins’ Southeastern Asset Management are top one and two institutional shareholders with 8.7% and 4%, respectively, of shares outstanding.

Yacktman commented in his shareholder letter:

“Dell’s shares fell modestly as the stock had been trading above the Dell Management takeover price and no new bidders appeared. We think the proposed management buyout is unattractive and are voting against it. Recently, we went on record supporting Carl Icahn and Southeastern Asset Management’s proposal to replace the board and offer a tender to shareholders who wish to sell.

Management at Dell has done a poor job at both business execution and capital allocation. It is sad that having frustrated investors with overpriced acquisitions, ill-timed share repurchase, poor corporate strategy and an accounting scandal that led to a settlement with the SEC, management jumped in to purchase the entire company, with the stock not far from a recent low. We believe other outside proposals would be of much greater benefit to shareholders. We recommend others reject the acquisition proposal and support the Icahn/Southeastern proposal.”

Eventually, on Sept. 12, Michael Dell was successful in buying out the company in partnership with global technology investment firm Silver Lake for $25 billion after shareholders voted in their favor at a special meeting. Shareholders of Dell will receive $13.75 in cash for each of their Dell shares, in addition to a cash dividend of $0.13 per share.

Yacktman’s fourth quarter 2012 average price was $9.78, giving him a modest profit on the holding. In addition, because the holding does not meet the 5% threshold for mid-quarter reporting to the SEC, it is unknown whether he disposed of any shares after the Icahn/Southeastern proposal did not pan out.

Yacktman also made sizable additions to his stake in PepsiCo Inc. (NYSE:PEP) (up 25.54%), Coke (NYSE:KO) (up 49.53%) and Oracle Corp. (NYSE:ORCL) (up 46.78%) during the third quarter.

For more Donald Yacktman stocks, go to his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Donald Yacktman.

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