"Tracking Seth Klarman’s Baupost Group Holdings – Q3 2020 Update"
"Seth Klarman’s 13F portfolio value increased from $8.01B to $9.25B this quarter.Baupost Group added Pershing Square Tontine, Micron Technology, and Applied Materials while dropping Akebia Therapeutics.The portfolio continues to be heavily concentrated with the top three positions accounting for ~41% of the 13F portfolio.This article is part of a series that provide an ongoing analysis of the changes made to Baupost Group's 13F stock portfolio on a quarterly basis. It is based on Klarman’s regulatory  filed on 11/13/2020. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund's moves during Q2 2020.Baupost Group’s 13F portfolio value increased ~16% from $8.01B to $9.25B this quarter. The total number of 13F securities increased from 29 to 34. The portfolio is heavily concentrated with eBay Inc., Liberty Global, Fox Corp, ViaSat, and ViacomCBS together accounting for ~52% of the 13F holdings.Since inception (1982), Baupost Group’s 13F 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. On average, the fund has held ~25% cash over the last decade. 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:Pershing Square Tontine (PSTH) and warrants (PSTHWS): PSTH is a large 4.29% of the 13F portfolio stake established this quarter. Pershing Square Tontine is a ~$4B SPAC that had an IPO in July. The units started trading at ~$21.50. Separate trading of the stock and warrants embedded in the units started trading around mid-September. They currently trade at $23 and $7.40 respectively.Note: Pershing Square Tontine has a few distinct features that make them attractive to retail investors:20% founder share dilution is absent – most SPACS are structured so as to cause a 20% dilution because of founder shares that are awarded for next to nothing. In this case, there are no such shares.Warrant structure is skewed to long-term holders – the tontine structure is a setup that disincentivizes redeeming after business combination announcement – i.e.,, if you choose to redeem, then you lose two-thirds of the warrants due. Details of the unit structure follow:one share of common stock,one-ninth of a redeemable warrant, exercisable at $23; andtwo-ninths of a warrant, exercisable at $23 provided that they are not redeemed in connection with a proposed business combination.Sponsors generally get sponsor warrants for cheap. But, in this case, Pershing Square and its affiliates (including Tontine board members) are paying $67.8 million for warrants to acquire 6.21% of the company. These have a ten-year term, can be exercised only after 3 years, and strike price is $24 per share.Micron Technology (MU), Applied Materials (AMAT), Healthpeak Properties (PEAK), and Howmet Aerospace (HWM): MU is a 2.65% of the portfolio position purchased this quarter at prices between $42.50 and $52.65 and the stock currently trades at $57.93. The 1.48% AMAT stake was established at prices between ~$55 and ~$68 and it is now at $72.81. The 1.17% PEAK position was purchased at prices between $25.50 and $29 and it now goes for $29.71. The small 0.83% HWM stake was established at prices between $14.75 and $18.80 and it currently trades at $22.36.RedBall Acquisition (RBACU), Vesper Healthcare Acquisition (VSPRU), Reinvent Technology (RTPU), and Broadstone Acquisition (BSNU): These three SPAC units had IPOs during the quarter. VSPRU and BSNU units are currently trading near cash-value at ~$10. RBACU is at $10.70 while RTPU is at $11.16. Baupost established minutely small (less than ~0.5% of the portfolio each) stakes in all four of these units.Stake Disposals:Akebia Therapeutics (AKBA): The 2.54% AKBA stake came about as a result of the all-stock merger with Keryx Pharmaceuticals. Baupost had effective ownership of 65.37M shares (includes 39.6M shares of convertible notes they agreed to redeem at a conversion price of $4.17) for which they received 24.47M shares of AKBA (0.37433:1 ratio). Overall, their cost-basis was around $19, much higher than the current price of $2.54. The entire position was disposed over the last four quarters at prices between $2.40 and $13.60.AmerisourceBergen (ABC): ABC was a minutely small position established in Q3 2017. It was built to a significant stake next quarter at prices between $73 and $94. The two quarters thru Q3 2018 had seen a stake doubling at prices between $79 and $95 while next quarter saw a ~25% selling at prices between $71 and $94. There was a ~20% stake increase in Q1 2019 at prices between $73 and $87. Last four quarters had seen a ~80% selling at prices between ~$74 and ~$102. The 0.59% remainder stake was eliminated this quarter at prices between ~$94 and ~$105. The stock is now at ~$108.Univar Inc. (UNVR): UNVR stake was established in Q3 2018 at prices between $25.50 and $31 and increased by ~440% next quarter at prices between $16.25 and $31. The position was sold down by ~40% in Q1 2020 at prices between ~$7 and ~$24. Last quarter saw another ~75% selling at prices between $9.60 and $18.15. The disposal this quarter was at prices between ~$16 and ~$19. The stock is now at $17.37.HCA Healthcare (HCA) and Ventas Inc. (VTR): These two small (less than ~1.25% of the portfolio each) positions purchased last quarter were dropped this quarter.Stake Increases:ViaSat (VSAT): VSAT is a large (top five) position at ~6% 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. In July, Baupost participated in ViaSat’s 4.47M share private placement by acquiring ~2.56M shares at ~$39 per share. The stock currently trades at $34.59.Note: Baupost controls ~24% of the business.Liberty Media Sirius XM (LSXMK): The 3.13% LSXMK stake was primarily built this quarter at prices between $32 and $37 and the stock currently trades at $41.51.PG&E Corporation (PCG): PCG is a 3.11% stake built during the first three quarters of 2018 at prices between $38 and $47. Q2 2019 saw another 58% stake increase at prices between $6 and $24. Last three quarters had seen a ~80% reduction at prices between ~$6.50 and ~$18. This quarter saw the position rebuilt at prices between $8.60 and $10. The stock currently trades at $11.40.Note: It was reported in November 2018 that Baupost had hedged this position by buying $1B worth of certain insurance claims against PG&E connected to the Nov 2017 wildfires for ~35c on the dollar. Baupost collected ~$3B on those payments this August.HD Supply Holdings (HDS): HDS is a ~3% of the portfolio position purchased in Q1 2020 at prices between ~$23 and ~$43 and the stock currently trades at $44.81. There was a ~7% stake increase last quarter and that was followed with a ~3% increase this quarter.SS&C Technologies (SSNC) and Verint Systems (VRNT): These two positions were purchased last quarter and increased this quarter. SSNC is a ~2% position primarily built this quarter at prices between ~$56 and ~$65 and it is now at $64.83. The 1.19% VRNT stake was built at prices between ~$42 and ~$51 and the stock currently trades at $54.37.Stake Decreases:eBay Inc. (EBAY): EBAY is currently the largest 13F position at ~17% of the portfolio. It was established in Q4 2018 at prices between $26 and $33 and increased by ~40% in Q1 2019 at prices between $28 and $38. There was a ~18% selling next quarter at prices between $35.50 and $40. That was followed with a ~30% selling in Q3 2019 at prices between $38 and $42. Q4 2019 saw a ~20% stake increase at prices between $34.50 and $39.25. That was followed with a ~60% increase in Q1 2020 at prices between $26.34 and $38.50. The stock currently trades at $48.67. This quarter saw a ~6% trimming.Fox Corp (FOX) (FOXA): The position came about as a result of the merger transaction between Walt Disney and Twenty First Century Fox. Klarman had a huge position in Twenty First Century Fox. The deal closed in March and the terms were ~$38 per share in cash or Disney stock subject to collar and one-third of one-share of new Fox for each share of Twenty First Century Fox. Klarman’s stake in Fox Corp is the third-largest in the portfolio at ~10%. The stock currently trades at $26.64. This quarter saw marginal trimming.Qorvo Inc. (QRVO): QRVO is a 4.13% 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 in Q4 2017 at prices between $65 and $81. The stock is now at ~$148. Last year had seen a ~75% selling at prices between $60 and $118. There was a ~11% stake increase in Q1 2020. Last two quarters have seen only minor adjustments.HP Inc. (HPQ): HPQ is a 2.73% of the portfolio stake established in Q4 2019 at prices between $16 and $20.75 and doubled next quarter at prices between ~$13 and ~$23. The stock currently trades at $19.61. Last two quarters saw a one-third selling at prices between ~$14 and ~$20.Alphabet Inc. (GOOG) (GOOGL) and Facebook Inc. (FB): These two positions were established in Q1 2020. The 2.46% GOOG stake was purchased at prices between $1057 and $1527 and the stock currently trades at ~$1777. Last two quarters saw a ~50% selling at prices between $1098 and $1728. FB is a 1.59% of the portfolio position established at prices between $146 and $223 and it is now at ~$277. Last two quarters saw a ~70% selling at prices between ~$154 and ~$304.Theravance Biopharma (TBPH): TBPH is a 1.40% of the 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 last major activity was a ~25% increase in Q4 2016 at prices between $24.50 and $38.50. The stock is now at $17.66. This quarter saw a ~6% trimming.Note: Klarman controls ~18% of the business. The 13F also lists a small position in Theravance Biopharma Notes.Colony Capital (CLNY): The 0.67% stake in Colony Capital came about as a result of the three-way merger of Colony Capital, Northstar Asset Management Group, and Northstar Realty Finance that closed in January 2017. Baupost held stakes in all three of these stocks and those got converted into CLNY shares. Roughly half the position was sold last quarter at prices between $1.42 and $3.10. This quarter also saw a ~12% trimming. Their overall cost-basis is ~$12.50 per share. CLNY currently trades at ~$4. They control ~4.5% of the business.Vista Oil & Gas (VIST): VIST had an IPO in July 2019. Shares started trading at $9.25 and currently goes for $2.40. The position saw a ~25% selling this quarter at prices between ~$2 and ~$3.70.Note: Baupost controls ~6.75%  of Vista Oil & Gas.Kept Steady:Liberty Global (LBTYK) (TBTYA): LBTYK is currently the second-largest position at ~14% of the portfolio. It was established in Q3 2018 at prices between $25 and $28.50 and increased by ~120% next quarter at prices between $19.50 and $27.50. There was another ~27% stake increase in Q1 2019 at prices between $19.80 and $25.80 and that was followed with a ~12% stake increase next quarter. The stock currently trades near the low end of those ranges at ~$21. Q1 2020 also saw a ~16% stake increase while last quarter there was a marginal further increase. For investors attempting to follow, LBTYK is a good option to consider for further research.ViacomCBS (VIAC) previously CBS Corporation: VIAC is a fairly large (top five) 5.70% position purchased in Q4 2018 at prices between $42 and $58.50 and increased by 235% next quarter at prices between $43.50 and $52. The following three quarters had also seen a stake doubling at prices between $35.50 and $53.50. Q1 2020 saw another one-third increase at prices between $11.25 and $42. The stock currently trades at $30.20. There was a ~16% selling last quarter at prices between $12.43 and $28.51.McKesson Corp. (MCK): MCK is a 2.69% portfolio stake built during the five quarters thru Q3 2018 at prices between $123 and $177. Q1 2019 also saw a two-thirds increase at prices between $110 and $136. The pattern reversed in Q3 2019: ~50% reduction at prices between $134 and $149. That was followed with a ~20% stake increase next quarter at prices between $130 and $153. The stock currently trades at ~$183.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.Translate Bio (TBIO): The 2.62% TBIO stake saw a ~35% stake increase in Q2 2019 at prices between $8.75 and $13.25 and that was followed with a stake doubling next quarter at prices between $8 and $12. There was a minor ~3% stake increase last quarter at ~$22 per share. The stock is now at ~$16.Note: TBIO had an IPO in June 2018. Its main asset is a compound to treat Cystic fibrosis (mRNA therapy) acquired from Shire plc. Klarman controls ~28% of the business.Nexstar Media Group (NXST): The ~2% NXST position was established in Q4 2018 at prices between $71 and $88. Q2 & Q3 2019 saw a ~80% stake increase at prices between $90 and $120. The stock is now at ~$100.Atara Biotherapeutics (ATRA): ATRA is a 1.39% of the portfolio stake established in Q4 2014 at around $19 per share. The original position was almost doubled next quarter at prices between $18 and $42.90. Recent activity follows: there was a ~17% stake increase in Q1 2018 at prices between $18 and $48. Q3 2019 also saw a ~20% stake increase at prices between $12 and $20. Last quarter saw a similar increase at prices between $7.50 and $14.93. The stock currently trades at ~$18.Note: Klarman controls ~18% of the business.Veritiv Corporation (VRTV): VRTV is a 0.49% of the 13F portfolio position established in Q3 2014 at prices between $32.50 and $50.50. Q4 2017 saw a ~20% stake increase at prices between $22.50 and $32.50. The stock currently trades well below the low end of those ranges at $19.64.Note: Klarman’s ownership interest in VRTV is ~23%.Trilogy Metals (TMQ): The very small 0.24% of the portfolio TMQ stake was kept steady this quarter.Note: Baupost controls ~9% of Trilogy Metals.The spreadsheet below highlights changes to Klarman's 13F stock holdings in Q3 2020:7/30/2020 – Q2 2020 Letter at SA: . Bloomberg report excerpt in SA - - Baupost was a net seller of stocks from April to June 30, with cash rise to 31% from 26%. “Gains in the hedge fund were led by EBay Inc., Pacific Gas and Electric Co., Liberty Global Plc, ViacomCBS Inc., Steinhoff International Holdings NV and Translate Bio Inc.Covid-19 has caused “some adverse developments” in the firm’s public portfolio but those are likely to be temporary, he said. Investments in subrogation claims and equity of Pacific Gas were not affected by Covid-19 and substantial distribution is expected to be paid this month. The pandemic is challenging some of the firm’s private holdings including in real estate. While residential property developments in Miami, Denver, Lake Tahoe and southern Delaware are experiencing strong sales and traffic, a mixed use property outside of Cleveland is impaired because rents aren’t being paid, he said. Occupancy is also falling at a “major residential property” that wasn’t identified. Hedges cost the firm 1% of net asset value in the second quarter after contributing about 3% in the first quarter.”Regulatory filings thru 8/14/2020: 13D/A – 8/10 – TBIO – 18.04M shares – 24.3% of business, Form 4 – 6/30 – 500K shares purchased @ 22. 13D/A – 7/27 – VSAT – 16.29M shares – 24.13% of business. Participated in a private placement at $39.11: “On July 22, 2020, in connection with a private placement by the Issuer (the “Private Placement”) the Issuer entered into a securities purchase agreement (the “Purchase Agreement”) with Baupost Group Securities, L.L.C. and the other purchasers party thereto (collectively, the “Purchasers”), pursuant to which the Issuer agreed to sell an aggregate of 4,474,559 of shares of the Issuer’s Common Stock at a price per share of Common Stock equal to $39.11. Under the Purchase Agreement, Baupost Group Securities, L.L.C. agreed to purchase an aggregate of 2,556,891 shares of Common Stock for an aggregate purchase price of $100,000,007.01.” Form 4 – 7/27 – 2.56M shares @ 39.11 – 16.29M shares total."