Billionaire Dan Loeb Reiterates Bullish Thesis on Baxter, Holds on to Allergan Stake & Other Market Commentaries

Third Point LLC, an investment management firm founded in 1995 by billionaire Daniel S. Loeb, primarily focuses on event-driven, value-oriented investing. Mr. Loeb, who currently serves as the asset manager’s Chief Executive Officer, has three decades of experience in financial markets, particularly in special situation equities, distressed debt and risk arbitrage. In a recently-released quarterly letter to investors, the New York-based asset manager said the “Battle of the Bastards” scene in the TV series “Game of Thrones” showed how it felt to manage money over the past year.

“Surging enemies forming a seemingly impossible perimeter, a crush of fellow soldiers on the field, arrows coming in overhead, and the need to avoid panic and deftly use sword and shield to fight your way out of a seemingly impossible situation is a good analogy for the emotional experience of managing assets since last summer”, said Third Point LLC in its freshly-released letter to investors.

Nonetheless, the multi-billion-dollar investment firm managed to beat the S&P 500 gauge in the second quarter of 2016, returning 4.6% during the quarter versus the 2.5% return delivered by the S&P 500 Index. Third Point LLC’s return for the first half of the year was 2.2%, below the 3.8% return generated by the S&P 500 benchmark. The investment firm has its capital in a “well-diversified portfolio of US-centric credit and equities”. That said, the following article will lay out Third Point’s thoughts on its largest equity investment, as well as will discuss four other top holdings, based on its latest 13F filing.

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#1. Baxter International Inc. (NYSE:BAX)

– Shares owned by Third Point LLC as of March 31: 53.85 Million

– Value of Third Point LLC’s holding as of March 31: $2.21 Billion

Baxter International Inc. (NYSE:BAX) was the largest equity holding in Third Point LLC’s portfolio at the end of the March quarter, accounting for 20.4% of the entire value of that portfolio. The position was worth $2.21 billion on March 31. The activist firm’s investment in the global manufacturer and supplier of health care products has generated a nearly 20% internal rate of return (IRR) since its inception last June, partially driven by the investment firm’s active involvement in Baxter immediately following the divestiture of its biopharmaceuticals business, Baxalta, in early July. “Despite this meaningful move in performance, its current size is consistent with our conviction about the company and its leadership and the potential we see for meaningful upside from these levels”, said Third Point LLC in its investor letter. Dan Loeb and his team are encouraged by the results of CEO Joe Almeida’s execution of his freshly-outlined strategic plan that focuses on portfolio optimization, enhanced operational excellence, and disciplined capital allocation. Mr. Almeida took the helms of the company in early 2016. Baxter shares are 26% in the green year-to-date. Ken Griffin’s Citadel Advisors LLC was the owner of 5.22 million shares of Baxter International Inc. (NYSE:BAX) at the end of March.

#2. Allergan plc (NYSE:AGN)

– Shares owned by Third Point LLC as of March 31: 5.00 Million

– Value of Third Point LLC’s holding as of March 31: $1.34 Billion

Third Point LLC had exactly 5 million shares of Allergan plc (NYSE:AGN) in its portfolio at the end of the first quarter, which were valued at $1.34 billion. The Dublin-domiciled Botox maker was the largest detractor in Third Point’s portfolio this year, primarily due to the collapse of the planned $160 billion tie-up with U.S. pharma company Pfizer Inc. (NYSE:PFE). The multi-billion-dollar inversion deal was pulled after the U.S. Treasury presented new rules to curb companies from moving their headquarters overseas to benefit from lower taxes. Although the New York-based hedge fund firm reduced its more concentrated long investments in health care, the firm continues to hold its Allergan stake. Israel-based Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) anticipates to complete the $40.5 billion acquisition of Allergan’s generic-drug business next week after federal regulators approved the deal. Allergan shares are 16% in the red thus far in 2016 despite having gained an impressive 14% in the past month alone. Andy Redleaf’s Whitebox Advisors cut its stake in Allergan plc (NYSE:AGN) by 27% during the June quarter to 50,849 shares.

#3. Dow Chemical Co (NYSE:DOW)

– Shares owned by Third Point LLC as of March 31: 25.00 Million

– Value of Third Point LLC’s holding as of March 31: $1.27 Billion

Dow Chemical Co (NYSE:DOW) was the third-largest equity position in Dan Loeb’s pool of holdings at the end of the January-to-March quarter, making up 11.7% of the billionaire’s portfolio. The 25 million-share position was valued at $1.27 billion at the end of the first quarter. The planned all-stock merger of U.S. chemical giants Dow Chemical and E. I. Du Pont De Nemours and Co (NYSE:DD) remains on track to close by the end of 2016, as the companies recently offered concessions in a bid to alleviate EU antitrust concerns about the proposed mega-merger. Just recently, shareholders of both Dow Chemical and DuPont approved plans to merge and later break up into three companies. The soon-to-be created behemoth intends to achieve $3 billion in cost synergies before splitting into three independent companies: a pure-play agriculture company, a pure-play material science company, and an innovation-driven specialty products company. Dow Chemical shares have advanced 4% thus far in 2016. Ray Carroll’s Breton Hill Capital owns 45,601 shares of Dow Chemical Co (NYSE:DOW) as of June 30.

#4. Alphabet Inc. (NASDAQ:GOOGL)

– Shares owned by Third Point LLC as of March 31: 700,000

– Value of Third Point LLC’s holding as of March 31: $534.03 Million

The New York-based asset manager acquired a new stake of 700,000 Class A shares of Alphabet Inc. (NASDAQ:GOOGL) during the first quarter of 2016, which was valued at $534.03 million on March 31. The new position accounted for 4.9% of the hedge fund’s entire portfolio. Although Alphabet’s advertising business appears to have matured, the company continues to be on track for meaningful growth in the years ahead. Analysts at MKM Partners, who have a ‘Buy’ rating on Alphabet and a price target of $930, believe there is “potential for better margin especially as we believe YouTube profitability should be ramping up this year and next”. Moreover, the analysts believe the 2016 Summer Olympic Games and the U.S. presidential election will contribute $5 billion in additional ad spending in the second half of the year, with roughly $1.2 billion being allocated online. Hence, Alphabet is anticipated to capture $300 million-to-$400 million from increased ad spending from the two events. Alphabet’s Class A shares are down 2% year-to-date. Ken Fisher’s Fisher Asset Management owns 995,319 Class A shares of Alphabet Inc. (NASDAQ:GOOGL) as of the end of the second quarter.

#5. Yum! Brands Inc. (NYSE:YUM)

– Shares owned by Third Point LLC as of March 31: 5.50 Million

– Value of Third Point LLC’s holding as of March 31: $450.18 Million

Dan Loeb’s Third Point LLC upped its position in Yum! Brands Inc. (NYSE:YUM) by 5.42 million shares during the January-to-March period, ending the second quarter with 5.50 million shares. The reshuffled position was worth $450.18 million at the end of the first quarter and made up 4.2% of the firm’s portfolio. In October 2015, the owner of fast food chains KFC, Pizza Hut and Taco Bell announced plans to separate its China business into an independent, publicly-traded company, but the sale of its China franchise recently came to a standstill after failing to reach an agreement on price with the two main bidders. Yum! Brands has been under pressure from activist investor Keith Meister of Corvex Capital to cut loose its China business, as various food safety scandals involving the company’s Chinese suppliers damaged the performance of the entire company. China-based private equity fund Primavera and Singapore’s sovereign wealth fund Temesek are believed to be the primary bidders for the franchise. Larry Chen and Terry Zhang’s Tairen Capital added a 207,139-share stake in Yum! Brands Inc. (NYSE:YUM) to its portfolio during the June quarter.

Disclosure: None