"Tracking Seth Klarman’s Baupost Group Holdings – Q1 2012 Update"
"This article is part of a series that provide an ongoing analysis of the changes made to Baupost Group's U.S. stock portfolio on a quarterly basis. Baupost Group is diversified globally and holds less widely held asset classes such as liquidations, bankruptcies, and distressed debt. The fund also has a reputation of holding large amounts of cash at any given time. The US long portfolio which had $3.34B of assets in Q4 2011, has dipped to just below $3B as of Q1 2012. The ~10% downward change in allocation is still in the high-end of the 2.4% to 15% allocation range for US long holdings in his portfolio since inception (1982). As such, the current allocation signifies a mild bullish bias.The number of holdings in the US long portfolio has reduced to 20 from 23 – it sold off three positions but did not add any new stakes. The significant events during the last three months include:On March 28, 2012, New York State Supreme Court Justice Barbara Kapnick dismissed a case filed in February 2011 by Baupost Group against Bank of New York Mellon Corporation, the trustee for certain mortgage-backed bonds held by the group. Walnut Place, a legal entity for Baupost Group alleged that Countrywide (a Bank of America unit) breached representations and warranties set forth in two Pooling and Servicing Agreements (PSAs). At issue is the alleged failure of BNY Mellon to force Bank of America to repurchase the loans. The judge cited that a “no-action clause” in the PSAs barred Walnut Place’s suit and that the action was premature as the trustee (BNY) asked for additional time to investigate the matter. Baupost owns $1.4B in face value of the bonds at issue.The mega-quarry project application filed by Highland Companies (controlled by Baupost Group) continued to face local opposition. An application for a 2316 acre limestone mega-quarry at a depth of 200 ft. below the water level was filed on March 3, 2011, but local farmers (North Dufferin Agricultural and Community Taskforce and Citizens’ Alliance for a Sustainable Environment) forced the Ontario government to order a full environmental assessment of the project. The latest development is a letter dated May 7, 2012 from the Chairman of NDACT alleging that the review process of the Aggregate Resources Act (ARA) largely excluded locals and should therefore make amendments so as “to conduct more thorough ARA review hearings” and to have hearings at select rural communities including Dufferin County. If Highland Companies succeed in building the mine, Baupost Group will control the second largest such mine in North America with limestone deposits worth upwards of $6B at current prices. Highland Companies acquired the entire acreage between 2006 and 2010 for around $50M.Vivendi, the large French media group disclosed in the 2011 annual report that Baupost Group owned 25.5 million shares as of February 29, 2012. The ~2% ownership stake makes it one of his largest holdings. For investors attempting to follow Klarman, Vivendi is a good option as the price-per-share has continued to plummet since the beginning of the year.New Stakes:None.Stake Disposals:Genworth Financial (GNW): GNW, a 2% of the US stock portfolio position established in Q4 2011 when the price-per-share varied between $4.80 and $10.68, was disposed this quarter when the price-per-share varied between $6.55 and $9.54. The stock currently trades at $5.85. Genworth, though a very volatile stock, can be considered a value pick as its book value is ~ $32 per share. Genworth was expected to raise liquidity through the IPO of its Australian unit early this year. But, on April 18, 2012, a press release indicated that the offering was postponed to early 2013 citing “elevated” losses.PDL Biopharma Inc (PDLI): PDLI, a 1.7% stake, was eliminated this quarter when the price-per-share varied between $6.02 and $6.58. The bulk (70%) of the PDLI stake was built in Q4 2011 when the price-per-share varied between $5.5 and $6.5. The stock currently trades at $6.50. An investment in PDLI essentially boils down to assessing the impact of Queen et al patent expiration in December 2014. The royalty revenue stream will stop around 2015, and there is also ongoing patent related litigation (primarily Roche). Management has plans to continue as a going-entity past 2015 through an acquisition.Targacept Inc (TRGT): TRGT, a ~1% stake established in Q4 2011 when the price-per-share varied between $5 and $19.25, was eliminated this quarter when the price-per-share varied between $5 and $7.50. The price-per-share of TRGT dropped more than 50% in November 2011 after the failure of TC-5214 in a late-stage clinical trial. The investment can be termed a classic “cigar-butt” pick – buying low-quality companies at very cheap prices. The gamble did not pay off as the stock price continued to tumble on further bad news in the last two months: top-line results from the remaining TC-5214 studies did not meet the primary endpoint and AstraZeneca PLC promptly dissolved its collaboration and license agreement for TC-5214.Stake Increases:Novagold Resources Inc (NG): NG, a small 1% of the US stock portfolio position established in Q3 2011 when the price-per-share varied between $6.45 and $11.22, has since been built up to a more significant 2.5% stake over the last two quarters when the price-per-share varied between $6.19 and $11.49. On a related note, Klarman had taken a relatively large 5% of the US stock portfolio position in Allied Nevada Gold (ANV) in Q1 2011 when the price-per-share varied between $24 and $35. The stock currently trades at $26.29. Combined, these two positions account for a very significant ~6% of the US long portfolio. NG currently trades at $5.41, well below the price-range Klarman could have bought it at. As such, for investors attempting to follow Klarman, NG is a good choice.Theravance Inc (THRX): THRX, a large ~10% of the US long portfolio position, was increased marginally this quarter. Klarman is bullish on this stock which has rebounded by over 10% in the last month. GlaxoSmithKline (GSK) recently increased its stake in THRX from 18.3% to 26.8%. GSK has a collaboration agreement with THRX whereby the companies plan to replace GSK’s best-selling-drug Advair with treatments for asthma and chronic obstructive pulmonary disease (COPD) under the Relovair program.Idenix Pharmaceuticals (IDIX): IDIX stake was increased from 1.4% to 2.6% of the US long portfolio. The position was built up over the last year with large additions in the last two quarters. The stock was very volatile during the period with the price-per-share varying between $4.5 and $15. The significant stake increase this quarter represents a clear bullish bias. During Q1 2012, the price-per-share varied between $7 and $15. Currently, the stock trades at around $8.5, near the low-end of the price-range Klarman could have bought it at. For investors attempting to follow Klarman, IDIX is a good option.Stake Decreases:Hewlett Packard Company (HPQ): HPQ, a very large 14% of the US long portfolio position established in Q4 2011 when the price-per-share varied between $22 and $37, was decreased marginally during the quarter. The stock currently trades at ~$23. Despite the stake reduction, the large position-size indicates a bullish bias.BP PLC (BP):  BP, a very large 14% stake established in Q2 2011 when the price-per-share varied between $42 and $46, was decreased by ~22% this quarter. During this quarter, the price-per-share varied between $42 and $48. The stock currently trades at around $39. Despite the significant stake reduction, the position size is still very large and does not indicate a clear bearish bias.Microsoft Corporation (MSFT): MSFT, a large 7.5% stake, was reduced by over 40% this quarter. The price-per-share increased by ~23% during the quarter from a low of $26 to a high of $32. The very large stake reduction indicates a mild bearish bias.Alere Inc (ALR) & Multimedia Games Holdings (MGAM): ALR, a 1.5% stake, was almost completely sold-off this quarter. MGAM, a 0.7% stake, was reduced by 80% this quarter. The current stakes are insignificant and the stake disposals indicate a bearish bias.The rest of the portfolio remained steady during the quarter. The spreadsheet below highlights changes to Klarman's US stock holdings in Q1 2012:Please visit our  for an idea on how his holdings have progressed over the years and our  highlighting the fund's moves during Q4 2011.02/12/2012"