"Tracking Seth Klarman’s Baupost Group Holdings – Q4 2017 Update"
"Seth Klarman’s 13F portfolio value increased from $8.02B to $10.11B this quarter.Baupost Group added Time Warner while increasing Twenty First Century Fox, Allergan plc, and Qorvo Inc.The portfolio continues to be heavily concentrated with the top three positions accounting for one-third of the 13F portfolio.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. It is based on Klarman’s regulatory  filed on 02/13/2018. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund's moves during Q3 2017.Baupost Group’s 13F portfolio value increased ~26% from $8.02B to $10.11B this quarter. The total number of 13F securities decreased from 37 to 32. The portfolio is heavily concentrated with Synchrony Financial, Twenty First Century Fox, Cheniere Energy, ViaSat Inc., and Time Warner together accounting for ~50% of the 13F holdings.Since inception (1982), Baupost Group’s US long portfolio has accounted for between 2.4% to 15% of the Assets Under Management (AUM). The current allocation is at the high-end of that range. The rest of the AUM is diversified among cash, debt, real estate, and hedges. The fund continues to hold well over a quarter of the AUM in cash. Seth Klarman’s distinct investment style is elaborated in his 1991 book “”. The book is out-of-print and copies sell for a huge premium.New Stakes:Time Warner Inc. (TWX) and Sentinel Energy Services (STNL): These are the two new positions this quarter. TWX is a large (top five) merger arbitrage stake: in October 2016, AT&T (T) agreed to acquire Time Warner in a cash-and-stock deal valued at $107.50 per share (half cash). Justice Department sued to block the deal last November. The stock is now at $94.31. STNL is a SPAC established by former executives of Schlumberger (SLB) to acquire an underperforming energy services business.Stake Disposals:Dell Technologies (DVMT): DVMT, the VMWare tracking stock was a ~3% portfolio position. DVMT started trading in September 2016 following the close of Dell’s deal for EMC. Baupost had a huge stake in EMC for which they received $24.05 cash and 0.111 shares of DVMT for each share held. There was a ~15% reduction in Q1 2017 at prices between $54.50 and $65 and that was followed with another ~45% selling last quarter at prices between $86 and $111. The disposal this quarter was at prices between $74.50 and $85. The stock is now at $68.30.Note: DVMT trades at a wide discount to VMW. Both stocks have been volatile in the last month following Dell’s disclosure that they are considering a reverse-merger with VMWare as a possible option.Avis Budget Group (CAR) and Silver Run Acquistion: These two very small positions were reduced by ~75% each last quarter and disposed this quarter.Centennial Resource Development (CDEV) and Simply Good Foods (SMPL) WTS: These two minutely small stakes were also disposed during the quarter.Note: Simply Good Foods WTS stake came about as a result of Conyers Park Acquisition and Atkins Nutritionals combining to form the new entity Simply Good Foods. Baupost had a small stake in the former, a “blank check” company.Stake Increases:Twenty First Century Fox (FOX) (FOXA): FOX is a large (top three) 11.16% of the portfolio stake established in Q3 2015 at prices between $25.41 and $33.52 and increased by ~40% in Q1 2016 at prices between $24 and $28. H2 2016 also saw a two-thirds increase at prices between $24 and $29. There was another ~25% stake increase this quarter at prices between $24.50 and $35. The stock currently trades at $36.19.Note: In December 2017, Walt Disney (DIS) agreed to acquire certain assets (excludes Broadcasting network and stations, Fox News, Fox Business, FS1, FS2 and Big Ten Network) from Twenty First Century Fox in an all-stock deal (0.2745 shares of DIS per FOX share).Allergan plc (AGN): AGN is a large 7.28% of the US long portfolio stake established in Q1 2016 at prices between $266 and $299. Q2 2016 saw a ~16% increase at prices between $202 and $278. There was another ~70% increase in Q4 2016 at prices between $189 and $243. The pattern reversed in Q1 2017: almost 30% sold at prices between $210 and $250. The stock currently trades at $159. Last quarter saw a ~22% stake increase at prices between $202 and $256 and that was followed with a ~50% increase this quarter at prices between $164 and $211. For investors attempting to follow Baupost, AGN is a very good option to consider for further research.Qorvo Inc. (QRVO): QRVO is a large ~7% portfolio stake established in Q1 2017 at prices between $53 and $69 and increased by ~25% the following quarter at prices between $63 and $79. There was another ~22% stake increase this quarter at prices between $65 and $81. The stock is now at $79.35.Note: Baupost controls 8.65% of the business.Antero Resources Corporation (AR): AR is a fairly large 4.64% of the US long portfolio position established in Q3 2014 at prices between $54.50 and $66. The stake was increased by ~185% the following quarter at prices between $38.50 and $55.50. Recent activity follow: Q2 2016 saw a one-third reduction at prices between $24.50 and $30 while Q2 2017 saw a ~45% increase at prices between $19.50 and $22.50. The stock currently trades well below those ranges at $17.40. Last two quarters have seen a combined ~17% stake increase.Note: Klarman controls 7.83% of the business.Pioneer Natural Resources (PXD) and AmerisourceBergen (ABC): These two were minutely small stakes established last quarter. This quarter saw the positions built up to sizable stakes. The PXD position was built up to a 3.42% portfolio stake at prices between $142 and $174. The stock is now at $172. ABC is now a 1.30% position built at prices between $73 and $94 and the stock currently goes for $98.Note: ABC stock spiked earlier this week following rumors that Walgreens Boots Alliance (WBA) has approached the company with a takeover offer. Walgreens already owns 26% of ABC.Cardinal Health (CAH): The ~3% CAH position was purchased in Q4 2016 at prices between $65 and $78 and almost doubled in Q2 2017 at prices between $71.50 and $83. There was another ~25% increase last quarter at prices between $64 and $79 and that was followed with a stake doubling this quarter at prices between $55 and $68. The stock currently trades at $65.69. For investors attempting to follow Baupost, CAH is a good option to consider for further research.McKesson Corp. (MCK): MCK is a ~2% portfolio stake established last quarter at prices between $146 and $168 and increased by ~170% this quarter at prices between $135 and $163. The stock is currently at $146. For investors attempting to follow Baupost, MCK is a good option to consider for further research.Note: MCK had a previous round-trip. It was a 1.75% portfolio stake established in Q4 2016 at prices between $124 and $167 and sold out in Q2 2017 at prices between $135 and $168.Veritiv Corporation (VRTV): VRTV is a ~1% of the US long portfolio position established in Q3 2014 at prices between $32.50 and $50.50. This quarter saw a ~20% stake increase at prices between $22.50 and $32.50. The stock currently trades at $22.80. For investors attempting to follow Baupost, VRTV is a good option to consider for further research.Note: Klarman’s ownership interest in VRTV is ~23%.AMC Entertainment (AMC): AMC is a very small 0.75% of the portfolio position purchased last quarter at prices between $12.50 and $23.20 and increased by ~40% this quarter at prices between $11 and $16. The stock is now at $13.85.Note: Baupost has a 9.4% ownership stake in the business.NovaGold Resources Inc. (NG): The very small 0.42% long-term stake in NG saw a ~13% increase this quarter at prices between $3.40 and $4.25. The stock is currently at $3.71.Stake Decreases:PBF Energy (PBF): PBF is a fairly large 3.83% of the US long portfolio position first purchased in Q3 2013 at prices between $21 and $26. It was more than doubled the following quarter at prices between $21.50 and $31.50 and was increased by over 175% in Q1 2014 at prices between $24 and $31.50. The stake had since been doubled through periodic buying. Q3 2016 saw another ~50% increase at prices between $21 and $24. There was an about-turn this quarter: ~30% reduction at prices between $26 and $36. The stock currently trades at $29.82.Note: Klarman’s ownership interest in PBF is ~10%.Express Scripts (ESRX): ESRX is a 1.70% of the portfolio position established in Q1 2017 at prices between $64 and $73 and doubled the following quarter at prices between $59 and $67. The stock is now at $73.59. There was a ~10% trimming this quarter.ChipMOS (IMOS) and Forward Pharma (FWP): These two minutely small (less than 0.5% of the portfolio each) stakes saw further reductions this quarter.Note: Following settlement of a lawsuit with Biogen (BIIB) that netted $1.25B, FWP shareholders received $23.13 per share as a special dividend last year. The stock is now at $3.23. Regulatory filings since the quarter ended show Baupost owning 2.85M shares of FWP. This is compared to 4.17M shares in the 13F.Kept Steady:Synchrony Financial (SYF): SYF, the November 2015 spinoff from General Electric (GE) is now the largest position at 11.18% of the portfolio. It was established in Q3 2016 at prices between $25 and $28.50. Q2 2017 saw a two-thirds increase at prices between $26.50 and $34.50. The stock currently trades at $36.01.Cheniere Energy (LNG): LNG is Klarman’s third-largest 13F position at ~11% of the US long portfolio. The original stake was established in Q1 2014 at prices between $41 and $55. In H2 2014, it was doubled at prices between $62 and $84. The three quarters thru Q1 2016 saw another stake doubling at prices between $24 and $71. Q4 2016 saw a reversal: 22% sold at prices between $35.50 and $43.50. The stock currently trades at $57.40.Note: Baupost controls 8.72% of Cheniere Energy.ViaSat (VSAT): VSAT is a large (top five) position at 9.74% of the portfolio. The stake has only seen minor increases since Q3 2012. Klarman first purchased VSAT in 2008 at much lower prices and his overall cost-basis is in the high-teens. The stock currently trades at $67.87. Q4 2016 saw a ~14% increase at prices between $66 and $81. He is sitting on huge gains on the position.Note: Klarman controls ~22% of VSAT.Colony Northstar (CLNS): The fairly large 5.4% stake in Colony Northstar came about as a result of the three-way merger of Colony Capital (CLNY), Northstar Asset Management Group (NSAM), and Northstar Realty Finance (NRF) that closed in January last year. Baupost held stakes in all three of these stocks and those got converted into CLNS shares. They control ~9% of CLNS and their overall cost-basis is ~$12.50 per share. CLNS currently trades well below that at $8.52. For investors attempting to follow Baupost, CLNS is a good option to consider for further research.Note: The merger terms called for conversion to CLNS in the ratio 1:1.0996:1.4663 (NSAM:CLNY:NRF).Theravance Biopharma (TBPH): TBPH is a 2.57% of the US long portfolio position established in Q2 2014 as a result of the spinoff of TBPH from Theravance (now Innoviva). The spinoff terms called for Theravance shareholders to receive 1 share of TBPH for every 3.5 shares of Theravance held. The original stake was increased by ~5% in Q1 2015 at prices between $14.50 and $22. Q2 2016 saw another ~13% increase at prices between $17.50 and $24. The stock is now at $28.14. Q4 2016 also saw a ~25% increase at prices between $24.50 and $38.50.Note: Klarman controls ~19% of the business.Keryx Biopharma (KERX): KERX is a 1.19% of the US long portfolio position established in Q1 2014 at prices between $12 and $17. Q2 & Q3 2014 saw the position more than doubled at prices between $12.50 and $18. H1 2015 had also seen a ~40% further increase at prices between $9.50 and $14.50. The stock currently trades well below the low-end of those ranges at $4.64. Klarman’s cost-basis is at around $12.Note: The latest regulatory 13D filing shows Baupost beneficially owning 59.2M shares (42.53% of the business). This is compared to 25.79M shares in the 13F. The difference is due to $125M in 2020 convertible ($3.74) notes that they also own.Atara Biotherapeutics (ATRA): ATRA is a ~1% of the US long portfolio stake established in Q4 2014 at around $19 per share. In Q1 2015, the stake was increased by ~90% at prices between $18 and $42.90. The stock currently trades at $45.05.Note: Klarman controls ~14% of the business. The stock has doubled in the last month following optimism about its pipeline.Cascadian Therapeutics (CASC) and Paratek Pharmaceuticals (PRTK): The 0.32% stake in CASC was doubled in Q1 2017 at prices between $3.50 and $5.10. PRTK is a 0.42% position that saw a ~17% increase in Q2 2017 at prices between $18.50 and $25.50. The stock is now at $13.60.Note: Last month, Seattle Genetics (SGEN) agreed to acquire Cascadian Therapeutics for $10 per share cash.Note 2: Baupost Group controls ~9% of PRTK and ~17% of CASC.GTY Technology (GTYHU), Saban Capital Acquisition Corp. (SCAC), Sunrun Inc. (RUN), Trilogy Metals (TMQ), and Orexigen Therapeutics (OREX): These are very small (less than ~0.5% of the portfolio each) stakes kept steady this quarter.Note 1: Baupost controls ~9% SCAC and ~8% of GTYHU. They are “blank check” companies.Note 2: Baupost Group controls ~10% of TMQ.Note 3: Orexigen split 1-for-10 in July 2016. Baupost was involved in a couple of capital raise transactions. Including the implied dilutions, the beneficial ownership in Orexigen is at over one-third of the business.Note 4: The 13F also lists a small position in Theravance Biopharma Notes.The spreadsheet below highlights changes to Klarman's US stock holdings in Q4 2017:9/7/2017: FWP  and 2-for-1 conversion of ADS: “…plans to return a total of EUR 917.7 million to its shareholders… The ADSs are expected to begin trading ex-dividend on September 12, 2017, at which time the American Depositary Receipt ratio will change to 1 ADS to 2 ordinary shares… ” – 917.7M Euros translated to a distribution of $23.13 per ADS share. July 18, 2017 : Special Distribution of 19.45 Euros per share. So, ordinary shares outstanding was ~47.2M shares at that point. Details from the 9/26/2017 : The ADS ratio changed to 1 ADS to 2 ordinary shares and there was a 10-for-1 stocks-split followed by 80% of the shares annulled with the special dividend distribution – the overall effect was a total of 94.4M ordinary shares outstanding with each ADS representing 2 ordinary shares. The number of shares outstanding in term of ADS is ~47.2M shares – the same as prior to the transaction.Regulatory Filings thru 11/14/2017: VRTV – 13G/A – 3.05M shares – 19.45% of business."