Seth Klarman Buys 2, Piles Further Into PG&E and Fox in 3rd Quarter

Baupost's top buys include Disney target Fox and utility company hurt by Californian wildfires

Author's Avatar
James Li
Nov 14, 2018
Article's Main Image

Seth Klarman (Trades, Portfolio), portfolio manager of the Baupost Group, disclosed this week he plunged further into PG&E Corp. (PCG, Financial) and Twenty-First Century Fox Inc. (FOXA, Financial)(FOX, Financial), and established a position in Liberty Global PLC (LBTYK, Financial)(LBTYA, Financial) and Altaba Inc. (AABA, Financial) during the third quarter.

Baupost’s equity portfolio is worth approximately $12.67 billion, compared to the total firm assets of approximately $31 billion. While Klarman primarily invests in a wide range of securities, ranging from traditional stock investments to more esoteric ones like distressed debt and bonds, the author of “Margin of Safety” occasionally holds cash whenever investment opportunities are scarce. A CNBC article from Aug. 24, 2017, listed three of Klarman’s key investing secrets: analyzing the potential for loss before gain, distinguishing between absolute and relative returns, and focusing on individual investment ideas.

Top buy: Fox

Klarman invested in 12,585,338 Class A shares and 3,714,662 Class B shares of Fox, a diversified media and entertainment company bound to a potential merger with Walt Disney Co. (

DIS, Financial). The two transactions increased the equity portfolio 5.94% in the aggregate. Class A shares averaged $45.85 during the quarter while Class B shares averaged $45.39.

1993b150-e82b-11e8-ad76-13be0a6708c0.png

239a8120-e82b-11e8-882c-69fe8480f9a7.png

The New York-based company reiterated in its quarterly report that in June, Fox and Disney entered into a “restated merger agreement” in which Disney will acquire Fox’s film and TV business and outstanding shares at $38 per share. Prior to the acquisition, Fox will spinoff its broadcasting, TV stations, news and sports channels into a new subsidiary. The acquisition, which is expected to close during the first half of next year, received regulatory approval from the U.S. Department of Justice on June 27 and from the European Commission on Nov. 6.

Other gurus betting on the Disney-Fox merger include

Yacktman Asset Management (Trades, Portfolio) and the Yacktman Fund (Trades, Portfolio).

Second largest buy: PG&E

Klarman invested in 14,479,790 shares of PG&E, a San Francisco-based utility company that suffered significantly from the ongoing wildfires in California. The transaction increased Baupost’s equity portfolio 5.26%. Although shares averaged $44.53 during the third quarter, PG&E traded at an intraday low of $22.80, down approximately 30% from the previous close of $32.72.

1884745695.png

PG&E disclosed on Tuesday that Pacific Gas and Electric Co., a subsidiary of PG&E, had $3 billion in aggregate borrowings outstanding, which include $2.85 billion in revolving credit loans. In light of the ongoing Camp Fire, PG&E reported outages on the Caribou-Palermo 115 kV Transmission Line in Butte County. The company also noted that while the cause of the Camp Fire is still under investigation, Pacific Gas and Electric Co. risks significant liabilities in excess of insurance coverage and further declines to the company’s financial strength and profitability.

1654838338.jpg

GuruFocus lists several warning signs for PG&E, including increasing long-term debt, declining revenues and a weak Piotroski F-score of 3. The company’s financial strength and profitability both rank a poor 4 out of 10.

Gurus are still buying shares of PG&E despite the company’s torrid situation:

Andreas Halvorsen (Trades, Portfolio) established a 5,728,092-share stake in PG&E.

Liberty Global PLC

Klarman invested in 10,768,870 Class C shares and 4,957,205 Class A shares of Liberty Global PLC, a U.K.-based pay TV company. The two transactions increased the equity portfolio 3.52% in the aggregate. Class C shares averaged $26.98 during the quarter while Class A shares averaged $27.90.

1542214296375.png

GuruFocus ranks Liberty Global’s profitability 5 out of 10: although operating margins of 14.93% outperform 60% of global competitors, Liberty Global’s revenue and profit margins have declined over the past five years, with severe signs of declining profitability.

1292065440.png

Altaba

Klarman invested in 2,810,775 shares of Altaba for an average price of $70.49. The guru dedicated 1.51% of his equity portfolio to the position.

1542214634942.png

GuruFocus ranks Altaba’s financial strength 5 out of 10 on several weak indicators, which include low interest coverage. While the company’s debt-equity ratio ranks higher than 94% of global competitors, Altaba’s debt-EBITDA ratio of 17.98 is significantly higher than Joel Tillinghast’s safe threshold of 4.

Disclosure: no positions.

Read more here:

Synchrony Financial Has Some Questions to Answer

Cheap Stocks Are Not Always Value Stocks

Walter Schloss on Diversification and Macro Economics

Also check out:
Rating:
4 / 5 (1 votes)
Author's Avatar
WRITTEN BY

Request A Demo

Learn more about GuruFocus' key features, including All-In-One Screener, backtesting, 30-year financial, stock summary page, guru trades, insider trades, excel Add-in, google sheets and much more.

GuruFocus Screeners

Related Articles